AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PerArdua Corporation
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
------------------------
DELAWARE 43-1749675
(STATE OR OTHER JURISDICTION (I.R.S.
OF INCORPORATION OR EMPLOYER
ORGANIZATION) IDENTIFICATION NO.)
2836
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
-----------------------
PERARDUA CORPORATION PERARDUA CORPORATION
10940 Wilshire Boulevard, 10940 Wilshire Boulevard,
Suite 1600 Suite 1600
Los Angeles, California 90024 Los Angeles, California 90024
(310) 443-4240 (310) 443-4240
(ADDRESS AND TELEPHONE NUMBER (ADDRESS AND TELEPHONE NUMBER
OF OF
PRINCIPAL EXECUTIVE OFFICES) PRINCIPAL EXECUTIVE OFFICES)
SAMUEL P. SEARS, JR.
PERARDUA CORPORATION
16 South Market Street
Petersburg, Virginia 23803
(804) 861-0681
(NAME, ADDRESS AND TELEPHONE
NUMBER
OF AGENT FOR SERVICE)
-----------------------
COPIES OF COMMUNICATIONS TO:
J. BENJAMIN ENGLISH, ESQ. WILLIAM M. PRIFTI, ESQ.
LECLAIR RYAN, A PROFESSIONAL CORPORATION Lynnfield Woods Office Park
707 East Main Street, Suite 1100 220 Broadway, Suite 204
Richmond, Virginia 23219 Lynnfield, Massachusetts 01940
(804) 783-2003 (617) 593-4525
-----------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable on
or after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================================
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock(2) 1,150,000 $ 5.00 $ 5,750,000 --
Redeemable Warrants(3) 1,150,000 $ 0.10 $ 115,000 --
Common Stock issuable upon exercise ofRedeemable Warrants(4) 1,150,000 $ 6.50 $ 7,475,000 --
Representative's Warrants(5) 1 $ -- $ 100 --
Common Stock issuable upon exercise of
Representative's Warrants(6) 100,000 $ 8.00 $ 800,000 --
Redeemable Warrants issuable upon exercise of the
Representative's Warrants(6) 100,000 $ 0.16 $ 16,000 --
Common Stock underlying Redeemable Warrants issuable upon
exercise of Representative's Warrants(6) 100,000 $10.40 $ 1,040,000 --
TOTAL $15,196,100 $ 4,605
==================================================================================================================================
</TABLE>
(1) The proposed maximum offering price is estimated solely for the purpose of
computing the amount of the registration fee.
(2) Includes 150,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments in connection with the
Registrant's sale of the securities registered hereby, if any.
(3) Includes 150,000 Redeemable Warrants that the Underwriters have the option
to purchase to cover over-allotments in connection with the Registrant's
sale of the securities registered hereby, if any. Pursuant to Rule 416
under the Securities Act of 1933, as amended (the "Securities Act"), an
indefinite number of additional Redeemable Warrants are also being
registered to cover any adjustment resulting from the operation of the
anti-dilution provisions of the Redeemable Warrants.
(4) Includes 150,000 shares of Common Stock issuable upon exercise of the
Redeemable Warrants that the Underwriters have the option to purchase to
cover over-allotments in connection with the Registrant's sale of the
securities registered hereby, if any. Such shares are being registered for
resale by the purchasers thereof and their assigns and transferees on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act.
Pursuant to Rule 416 under the Securities Act, an indefinite number of
additional shares of Common Stock are also being registered to cover any
adjustment resulting from the anti-dilution provisions of the Redeemable
Warrants.
(5) In connection with the Registrant's sale of the shares of the securities
offered hereby, the Registrant is granting to the representative of the
several underwriters (the "Representative") warrants to purchase 100,000
additional shares of Common Stock and 100,000 additional Redeemable
Warrants (the "Represenative's Warrants"). The price to be paid by the
Representative for the Representative's Warrants is $100. The exercise
price of the Representative's Warrants is $8.00 per share of Common Stock
and $0.16 per Redeemable Warrant.
(6) Pursuant to Rule 416 under the Securities Act, an indefinite number of
additional shares of Common Stock and the Redeemable Warrants are also
being registered to cover any adjustment resulting from the anti-dilution
provisions of the Representative's Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
================================================================================
SUBJECT TO COMPLETION, DATED FEBRUARY 5, 1997
PROSPECTUS
- ----------
PERARDUA CORPORATION
1,000,000 SHARES OF COMMON STOCK
1,000,000 REDEEMABLE WARRANTS
PerArdua Corporation ("PerArdua" or the "Company") hereby offers (the
"Offering") 1,000,000 shares of the Company's common stock, $.01 par value per
share (the "Common Stock"), and 1,000,000 Redeemable Warrants (the "Redeemable
Warrants"). The Common Stock and the Redeemable Warrants offered hereby are
sometimes hereinafter collectively referred to as the "Securities." Each
Redeemable Warrant entitles the holder to purchase one share of Common Stock at
a price of $6.50 per share beginning , 1998 and ending 2002, unless the
Redeemable Warrants are redeemed by the Company as provided herein. The
Redeemable Warrants are redeemable by the Company at a redemption rate of $.20
per Redeemable Warrant at any time commencing , 1998 upon 30 days' prior written
notice, provided that the average closing bid price of the Company's Common
Stock equals or exceeds $9.00 per share for a 20 consecutive trading day period.
See "DESCRIPTION OF SECURITIES."
Prior to the Offering, no public market for the Securities existed and no
assurance can be given that any such market will develop after the completion of
the Offering or, that if developed, such market will be sustained. It is
currently anticipated that the initial public offering prices will be $5.00 per
share of Common Stock and $.10 per Redeemable Warrant. For the method of
determining the initial public offering price of the Securities, see "RISK
FACTORS" and "UNDERWRITING." The Company intends to apply for inclusion of the
shares of Common Stock and the Redeemable Warrants on the Nasdaq SmallCap Market
under the symbols "PRDU" and "PRDUW," respectively.
-------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. INVESTORS SHOULD BE ABLE TO SUSTAIN
A COMPLETE LOSS OF THEIR INVESTMENT. SEE "RISK FACTORS" AND
"DILUTION" ON PAGES 6 THROUGH 16 AND 18, RESPECTIVELY.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
Per Share $5.00 $.50 $4.50
Per Redeemable Warrant $ .10 $.01 $ .09
Total $5,100,000 $510,000 $4,590,000
================================================================================
(1) Does not reflect additional compensation to be received in the form of (a)
a 3% non-accountable expense allowance in the amount of $153,000 and a
consulting fee payable to Schneider Securities, Inc., as the representative
(the "Representative") of the Underwriters (the "Underwriters") in the
amount of $3,000 per month for a period of 36 months and (b) warrants (the
"Representative's Warrants") to purchase up to 100,000 additional shares of
Common Stock and 100,000 Redeemable Warrants at 160% of the public offering
price of the Securities. In addition, the Company has agreed to indemnify
the Underwriters against certain civil liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act").
See "UNDERWRITING."
(2) Before deducting additional expenses of the Offering payable by the
Company, estimated at $450,000, including the Representative's
non-accountable expense allowance and the consulting fee payable to the
Representative.
(3) The Company has granted the Underwriters an option to purchase up to an
additional 150,000 shares of Common Stock and/or 150,000 Redeemable
Warrants on the same terms and conditions set forth above, solely to cover
over-allotments, if any. If the over-allotment option is exercised in full,
the total "Price to Public," "Underwriting Discounts" and "Proceeds to
Company" will be $5,865,000, $586,500 and $5,278,500, respectively. See
"UNDERWRITING."
The Securities are being offered on a "firm commitment" basis by the
Underwriters, when, as, and if delivered to and accepted by the Underwriters and
subject to prior sale, withdrawal or cancellation of the Offering without
notice. It is expected that delivery of certificates representing the Securities
will be made at the clearing offices of Schneider Securities, Inc., on or about
__________, 1997.
SCHNEIDER SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE REDEEMABLE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PRIOR TO THE OFFERING, THE COMPANY WAS NOT A REPORTING COMPANY UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SUBSEQUENT TO
THE OFFERING, THE COMPANY INTENDS TO FURNISH TO ITS SHAREHOLDERS ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT ACCOUNTANTS, AND SUCH
OTHER PERIODIC REPORTS AS IT MAY DETERMINE TO FURNISH OR AS MAY BE REQUIRED BY
LAW.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information, including "RISK FACTORS" and the Company's financial
statements and related notes thereto appearing elsewhere in this Prospectus. The
Common Stock and Redeemable Warrants offered hereby involve a high degree of
risk. Investors in the Offering should be able to sustain a complete loss of
their investment. See "RISK FACTORS." This Prospectus contains certain
forward-looking statements that involve risks and uncertainties. The Company's
actual results and the timing of certain events could differ materially from
those discussed in or projected by the forward-looking statements. Factors that
could cause or contribute to such differences include those discussed under
"RISK FACTORS."
THE COMPANY
The Company is a development stage pharmaceutical company engaged in the
development of a single anti-viral compound for which the Company has adopted
the trade name "Thiovir(tm)." The initial focus of the Company's development
activities will be to demonstrate the safety and efficacy of Thiovir for
treatment of patients infected with human immunodeficiency virus ("HIV"), the
virus which is the precursor to acquired immunodeficiency syndrome ("AIDS"), and
patients showing active infection of the opportunistic virus cytomegalovirus
("CMV") which causes blindness and other conditions. CMV is primarily manifested
among AIDS patients. The Company believes that Thiovir, if successfully
developed and approved for sale, would constitute a candidate for inclusion in
combination drug therapy for HIV/AIDS treatment and would provide several
benefits over existing treatments for CMV, particularly its potential ability to
replace more toxic intravenous treatment with a less toxic oral treatment. The
only development work on Thiovir to date has been limited to laboratory and
animal studies conducted by unaffiliated organizations. Therefore, Thiovir is in
an early stage of development. See "Business - Targeted Indications for
Thiovir."
In the United States, the use and sale of Thiovir is subject to the rules
and regulations of the United States Food and Drug Administration ("FDA"), and
obtaining the necessary FDA approval will require substantial preclinical tests
and clinical trials. The Company expects to commence clinical trials for Thiovir
in 1997. The Company believes that Thiovir may meet the criteria established by
the FDA for accelerated approval. As a result, the Company may be able to
commercialize Thiovir in a shorter time period than has historically been
applicable for a drug that does not meet the criteria for accelerated approval.
See "BUSINESS -- Government Regulation."
Initially, the Company intends to maintain a limited corporate
infrastructure devoted almost exclusively to the development and
commercialization of Thiovir. Accordingly, the Company will engage contract
research organizations ("CROs") to conduct preclinical tests and clinical trials
on Thiovir. The Company will also contract with other companies to manufacture
the drug. The Company intends to rely upon part-time consultants and CROs to
provide expertise in designing appropriate tests and trials and in seeking FDA
and other government approval. Furthermore, the Company does not believe that it
will be necessary to develop an extensive sales and marketing force to promote
the sale of Thiovir in the United States, if and when it may be sold, since the
market for HIV/AIDS and CMV therapies is concentrated among a relatively small
number of care providers.
In August 1996, the Company acquired an exclusive worldwide license to
proprietary rights to Thiovir held by the University of Southern California
("USC") from a limited partnership which funded the research and development of
Thiovir. The Company had generated no revenues from the sale of products and, as
of November 30, 1996, had an accumulated deficit of $2,090,690. There can be no
assurance that the Company will ever achieve profitable operations.
On January 9, 1997, the Company reincorporated in the State of Delaware. The
term "Company," when used in this Prospectus, refers to both the Delaware
corporation and its prededessor Missouri corporation, unless the context
requires otherwise. The Company's offices are located at 10940 Wilshire
Boulevard, Suite 1600, Los Angeles, California, and its telephone number is
(310) 443-4240.
3
THE OFFERING
Securities Offered by the
Company................. 1,000,000 shares of Common Stock and 1,000,000
Redeemable Warrants. See "DESCRIPTION OF
SECURITIES."
Redeemable Warrants....... Each Redeemable Warrant entitles the holder to
purchase one share of Common Stock at a price of
$6.50 per share beginning , 1998 and ending ,
2002, unless the Redeemable Warrants are redeemed
as provided herein. The Redeemable Warrants are
redeemable by the Company at a redemption price of
$.20 per Redeemable Warrant at any time commencing
thirteen months from the date of this Prospectus
on 30 days' prior written notice, provided that
the average closing bid price of the Common Stock
equals or exceeds $9.00 per share for 20
consecutive trading days ending within 10 days
prior to the notice of redemption. See
"DESCRIPTION OF SECURITIES."
Shares of Common Stock
Outstanding
before Offering(1)...... 2,643,440 shares
Shares of Common Stock to
be Outstanding
after Offering(1)....... 3,643,440 shares
Use of Proceeds........... The net proceeds of this Offering will be used for
further research and development and working
capital. See "USE OF PROCEEDS."
Risk Factors.............. Investment in the Securities involves a high degree
of risk and immediate dilution. See "RISK FACTORS"
and "DILUTION."
Proposed Nasdaq SmallCap
Market Symbols(2)....... Common Stock -- "PRDU"
Redeemable Warrants -- "PRDUW"
- --------
(1) Includes 50,000 shares of Common Stock subscribed for but not issued as of
February 5, 1997 pursuant to two private offerings to the same individual
(the "Pending Shares"). Of these shares, 21,560 shares were subscribed for
as of November 30, 1996.
(2) No assurance can be given that an active trading market for the Securities
will develop or be maintained. See "RISK FACTORS -- No Prior Market for
Common Stock and the Redeemable Warrants."
Except as otherwise indicated, all share and per share data in this
Prospectus (i) assume no exercise of the Redeemable Warrants, (ii) give no
effect to the 300,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option, including 150,000 shares of Common Stock
underlying the Redeemable Warrants subject to such option; (iii) give no effect
to 100,000 shares of Common Stock issuable upon exercise of the Representative's
Warrants; (iv) give no effect to the 100,000 shares of Common Stock issuable
upon the exercise of the Redeemable Warrants underlying the Representatives'
Warrants; (v) assume no exercise of stock options to purchase up to 500,000
shares of Common Stock which may be issued pursuant to the Company's Stock
Incentive Plan, of which, as of the date of this Prospectus, the Company has
granted options to purchase 10,000 shares of Common Stock of which at an
exercise price of $7.50 per share and committed to grant to three outside
directors options to purchase an aggregate of 30,000 shares of Common Stock at
an exercise price to be determined, but not less than $5.00 per share; and (vi)
assume no exercise of the Company's outstanding warrants to purchase shares of
Common Stock, of which 700,000 warrants have been issued as of the date of this
Prospectus at an exercise price of $10.00 per share (the "Outstanding
Warrants"). See "CAPITALIZATION" and "MANAGEMENT -- Executive Compensation and
Other Information -- Stock Incentive Plan."
4
SUMMARY FINANCIAL INFORMATION
The following sets forth certain historical financial information of the
Company:
STATEMENT OF ACTIVITIES DATA:
PERIOD FROM JULY 5, 1996,
DATE OF INCEPTION, TO
NOVEMBER 30, 1996
-----------------------
Revenue:
Interest income $ 1,858
-----------
Costs and Expense:
Research and development 2,058,980
General and administrative 33,568
-----------
2,092,548
-----------
Net loss (2,090,690)
===========
Net loss per common share (1) $ (.81)
===========
Shares used in computing net loss per common share (1) 2,593,440
===========
BALANCE SHEET DATA:
NOVEMBER 30, 1996
----------------------------
ACTUAL AS ADJUSTED(2)
---------- ---------------
Cash and cash equivalents $ 495,421 $ 4,715,421
Working capital 503,621 4,723,621
Total assets 532,005 4,752,005
Deficit accumulated during the development stage (2,090,690) (2,090,690)
Total stockholders' equity 510,487 4,730,487
- --------
(1) See notes 1 and 4 of Notes to Financial Statements for information
concerning the computation of net loss per common share and shares used in
computing net loss per common share.
(2) As adjusted to reflect the sale of the Common Stock and the Redeemable
Warrants offered hereby and the application of the estimated net proceeds
therefrom and the issuance of the Pending Shares. See "USE OF PROCEEDS."
5
RISK FACTORS
The Securities offered pursuant to this Prospectus are speculative and
involve a high degree of risk, and an investment in the Securities should be
considered only by investors who are capable of affording an entire loss of the
amount invested. Prospective investors should carefully consider, along with the
other information contained in this Prospectus, the following considerations and
risks in evaluating an investment in the Company.
DEVELOPMENT STAGE COMPANY
The Company commenced development stage activities in July 1996 and
accordingly has only a limited operating history upon which an evaluation of the
Company's business and prospects can be based. The Company has generated no
revenue to date, except for interest income, and does not expect to generate any
substantial revenues in the near future. The Company's ability to generate
revenues and profits will depend on its ability to successfully develop clinical
applications and obtain regulatory approvals for the anti-viral drug Thiovir and
to protect its proprietary rights in Thiovir. The Company must also develop the
capacity or arrangements with third parties to manufacture, distribute and
market Thiovir. There can be no assurance that the Company will be successful in
doing so. See "BUSINESS -- Overview."
INDEPENDENT AUDITORS' REPORT CONTAINS GOING CONCERN EMPHASIS PARAGRAPH
The report of the Company's Independent Auditors contains an
emphasis paragraph as to matters that raise substantial doubt about the
Company's ability to continue as a going concern, and management's inability to
provide any assurance that the Company will obtain sufficient financing to
continue as a going concern. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," the Company's Financial
Statements and Notes and the Independent Auditor's Report included herein.
UNCERTAINTY OF PRODUCT DEVELOPMENT
Thiovir is in an early developmental stage and requires significant,
time-consuming and costly development, testing and regulatory clearance.
Although the Company anticipates that the development and commercialization of
Thiovir, if successful, will occur more rapidly than is typical for a new
pharmaceutical product, this process typically takes several years at a minimum
and can require substantially more time. The successful development of any new
drug is highly uncertain and subject to a number of significant risks. These
risks include, among others, the possibility that Thiovir will be found to be
ineffective or unacceptably toxic or otherwise fail to receive necessary
regulatory clearances, that Thiovir will not achieve broad market acceptance,
that third parties will market equivalent or superior products, or that third
parties will hold proprietary rights that will preclude the Company from
marketing Thiovir. There can be, therefore, no assurance that the Company's
development activities will demonstrate the efficacy and safety of Thiovir as a
therapeutic drug, or, even if demonstrated, that there will be sufficient
advantages to the use of Thiovir over other drugs or treatments so as to render
Thiovir commercially viable. See "BUSINESS -- Targeted Indications for Thiovir"
and "-- Government Regulation."
RELIANCE ON A SINGLE TECHNOLOGY; LIMITED SCOPE OF OPERATIONS
The Company currently intends to focus its business exclusively on the
development and commercialization of the experimental drug Thiovir. In the event
the Company is not successful in developing and commercializing Thiovir,
investors are likely to realize a loss of all amounts invested in the Company.
ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has incurred losses since its inception. As of November 30,
1996, the Company's accumulated deficit was $2,090,690. Losses have resulted
principally from costs incurred in the acquisition and development of Thiovir
and general and administrative costs. These costs have exceeded the Company's
revenues, which to date have been generated solely from interest income. The
Company has not
6
generated any revenue to date from the sale of drugs and does not expect to do
so until Thiovir has been approved for sale. The Company expects to incur
significant additional operating losses which will increase as the Company's
drug development efforts expand. The Company's ability to achieve profitability
will depend upon its ability to develop and obtain regulatory approval for
Thiovir and to develop the capacity (or establish relationships with third
parties) to manufacture, market and sell Thiovir. There can be no assurance that
the Company will ever generate significant revenues or achieve profitable
operations. See "BUSINESS -- Government Regulation," "-- Sales and Marketing,"
and "-- Manufacturing."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's drug development program requires substantial capital
expenditures, including expenditures for preclinical testing and clinical trials
of Thiovir. The Company's future capital requirements will depend on many
factors, including the scope and results of preclinical testing and clinical
trials, the cost, timing and outcome of regulatory reviews, administrative and
legal expenses (including potential expenses of defending and enforcing the
Company's proprietary patent rights to Thiovir), the establishment of capacity
for sales and marketing functions, the establishment of relationships with third
parties for manufacturing and sales and marketing functions and other factors.
The Company expects that its capital requirements will increase significantly in
the future. See "BUSINESS -- Government Regulation," "-- Sales and Marketing"
and "-- Manufacturing."
The Company has incurred negative cash flow from development stage
activities since inception and does not expect to generate positive cash flow to
fund its operations for at least the next several years. As a result, the
Company believes that substantial additional equity or debt financing may be
required to fund its operations. There can be no assurance that the Company will
be able to consummate any such financing at all or on favorable terms or that
such financings will be adequate to meet the Company's capital requirements. Any
additional equity financing could result in substantial dilution to the
Company's stockholders, and debt financing, if available, may involve
restrictive covenants which preclude the Company from making distributions to
stockholders and taking other actions beneficial to stockholders. If adequate
funds are not available, the Company may be required to delay or reduce the
scope of its drug development program or attempt to continue development by
entering into arrangements with collaborative partners or others that may
require the Company to relinquish some or all of its rights to Thiovir. The
Company's inability to fund its capital requirements would have a material
adverse effect on the Company. See "USE OF PROCEEDS" and "DILUTION."
EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
Human pharmaceutical products are subject to rigorous preclinical testing
and clinical trials and other approval procedures mandated by the FDA and
foreign regulatory authorities. Various federal and foreign statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of pharmaceutical products. The process of
obtaining these approvals and the subsequent compliance with appropriate United
States and foreign statutes and regulations are time-consuming and require the
expenditure of substantial resources. In addition, these requirements and
processes vary widely from country to country. Among the uncertainties and risks
of the FDA approval process are the following: the possibility that studies and
clinical trials shall fail to prove the safety and efficacy of the drug, or that
any demonstrated efficacy will be so limited as to significantly reduce or
altogether eliminate the acceptability of the drug in the market place; the
possibility that the costs of development, which can far exceed the best of
estimates, may render commercialization of the drug marginally profitable or
altogether unprofitable; and the possibility that the amount of time required
for FDA approval of a drug may extend for years beyond that which is originally
estimated. In addition, the FDA or similar foreign regulatory authorities may
require additional clinical trials, which could result in increased costs and
significant development delays. Delays or rejections may also be encountered
based upon changes in FDA policy and the establishment of additional regulations
during the period of product development and FDA review. Similar delays or
rejections may be encountered in other countries. Thiovir may not qualify for
accelerated development and/or approval under FDA regulations and, even if
Thiovir does so qualify, it may not be approved for marketing sooner than would
be historically expected or at all.
7
There can be no assurance that even after substantial time and expenditures,
Thiovir will receive FDA approval on a timely basis or at all. If the Company is
unable to demonstrate the safety and effectiveness of Thiovir to the
satisfaction of the FDA, the Company will be unable to commercialize Thiovir.
Even if regulatory approval of Thiovir is obtained, the approval may entail
limitations on the indicated uses for which Thiovir may be marketed. A marketed
product, its manufacturer and the manufacturer's facilities are subject to
continual review and periodic inspections, and subsequent discovery of
previously unknown problems with a product, manufacturer or facility may result
in restrictions on such product or manufacturer, including withdrawal of the
product from the market. The failure to comply with applicable regulatory
requirements can, among other things, result in fines, suspension of regulatory
approvals, refusal to approve pending applications, refusal to permit exports
from the United States, product recalls, seizure of products, operating
restrictions and criminal prosecutions.
The effect of governmental regulation may be to delay the marketing of
Thiovir for a considerable period of time, to impose costly requirements on the
Company's activities or to provide a competitive advantage to the companies that
compete with the Company. Adverse clinical results by others could have a
negative impact on the regulatory process and timing with respect to the
development and approval of Thiovir. The Company is also subject to various
federal, state and local laws and regulations relating to safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals and the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, used
in connection with its development work. The extent and character of potentially
adverse governmental regulation that may arise from future legislation or
administrative action cannot be predicted. See "BUSINESS -- Government
Regulation."
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining required regulatory approvals for the commercial sale of
Thiovir, the Company must demonstrate through preclinical testing and clinical
trials that Thiovir is safe and effective for use in each target indication. The
results from preclinical testing and early clinical trials may not be predictive
of results that will be obtained in pivotal clinical trials. There can be no
assurance that the Company's clinical trials will demonstrate sufficient safety
and effectiveness to obtain required regulatory approvals or will result in a
marketable product. A number of companies in the pharmaceutical industry have
suffered significant setbacks in advanced clinical trials, even after promising
results in earlier trials. Similar setbacks in the Company's clinical trials
could interrupt, delay or halt clinical trials and could ultimately prevent its
approval by the FDA or foreign regulatory authorities for any and all targeted
indications. The Company or the FDA may suspend or terminate clinical trials at
anytime if it is believed that the trial participants are being exposed to
unacceptable health risks. There can be no assurance that clinical trials will
demonstrate that Thiovir is safe and effective.
There can be no assurance that if clinical trials are successfully
completed, the Company will be able to submit a New Drug Application ("NDA") in
a timely manner or that any such application will be approved by the FDA. Any
failure of the Company to complete successfully its clinical trials and obtain
approvals of corresponding NDAs would preclude the Company from commercializing
Thiovir in the United States. See "BUSINESS -- Government Regulation."
INTENSE COMPETITION; RISK OF TECHNOLOGICAL CHANGE
The Company is engaged in a segment of the pharmaceutical industry that is
highly competitive and rapidly changing. If successfully developed and approved,
Thiovir will compete with several existing HIV/AIDS and CMV therapies. In
addition, other companies are pursuing the development of pharmaceuticals that
target HIV/AIDS and/or CMV. The Company anticipates that it will face intense
and increasing competition in the future as new products enter the market and
advanced technologies become available. There can be no assurance that existing
products or new products developed by the Company's competitors will not be more
effective, or more effectively marketed and sold, than Thiovir. Competitive
products may render Thiovir obsolete or noncompetitive prior to the Company's
recovery of development or commercialization expenses. The Company's competitors
have significantly greater financial, technical and human
8
resources than the Company and may be better equipped to develop, manufacture
and market products. In addition, many of these companies have extensive
experience in preclinical testing and clinical trials, obtaining FDA and other
regulatory approvals and manufacturing and marketing pharmaceutical products.
Many of these competitors also have products that have been approved or are in
late-stage development and operate large, well-funded research and development
programs. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical and
biotechnology companies. Furthermore, academic institutions, government agencies
and other public and private research organizations are becoming increasingly
aware of the commercial value of their inventions and are actively seeking to
commercialize the technology they have developed. Accordingly, the Company's
competitors may succeed in commercializing products more rapidly or effectively
than the Company, which would have a material adverse effect on the Company. See
"BUSINESS -- Potential Market for Thiovir."
The Company believes that Thiovir may be an attractive candidate for
combination drug therapy in HIV/AIDS patients. Considerable additional research,
however, is necessary to validate this belief. There have been significant
recent developments in the use of combination drug therapy designed to arrest
the development of HIV. The Company believes that a significant number of
additional drugs are currently under development and will become available in
the future for the treatment of HIV. It is uncertain what effect these new
developments in the treatment or prevention of HIV will have on demand for
Thiovir as a treatment for CMV. Should treatment modalities be identified which
would effectively reduce or eliminate the incidence of CMV active infection
among AIDS patients, the potential market for Thiovir, as a part of combination
drug therapy or as a CMV treatment, may be significantly reduced or even
eliminated, which would have material adverse effect on the Company.
The ability of the HIV and CMV viruses to develop resistance to drugs has
reduced or eliminated the effectiveness of a number of existing drugs. Even if
Thiovir should initially prove effective, its effectiveness and acceptance in
the marketplace may be reduced by the development of resistant strains of the
HIV and CMV viruses.
UNCERTAINTY OF PATENTS; DEPENDENCE ON PATENTS, LICENSES AND PROPRIETARY RIGHTS
The Company's success will depend in large part on the ability of the
Company and its licensors to obtain patent protection with respect to Thiovir,
defend patents once obtained, maintain trade secrets and operate without
infringing upon the patents and proprietary rights of others and obtain
appropriate licenses to patents or proprietary rights held by third parties if
infringement would otherwise occur, both in the United States and in foreign
countries. The Company has no patents in its own name or patent applications of
its own pending, but has obtained an exclusive license to patents and other
proprietary rights from USC with respect to Thiovir.
The patent positions of pharmaceutical companies, including those of the
Company, are uncertain and involve complex legal and factual questions for which
important legal principles are unresolved. There can no be assurance that the
Company or its licensor have or will develop or obtain the rights to products or
processes that are patentable, that patents will issue from any of the pending
applications or that claims allowed will be sufficient to protect the technology
licensed to the Company. In addition, no assurance can be given that any patents
issued to or licensed by the Company will not be challenged, invalidated,
infringed or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company.
There can be no assurance that the Company is aware of all patents or patent
applications that may materially affect the Company's ability to make, use or
sell Thiovir. United States patent applications are confidential while pending
in the United States Patent and Trademark Office (the "PTO"), and patent
applications filed in foreign countries are often first published six months or
more after filing. Any conflicts resulting from third party patent applications
and patents could significantly reduce the coverage of the patents or patent
applications licensed to the Company and limit the ability of the Company or its
licensors to obtain meaningful patent protection. If patents are issued to other
companies that contain competitive or conflicting claims, the Company may be
required to obtain licenses to these patents or to develop or obtain alternative
technology. There can be no assurance that the Company will be able to obtain
any
9
such license on acceptable terms or at all. If such licenses are not obtained,
the Company could be delayed in or prevented from pursuing the development or
commercialization of Thiovir.
Litigation which could result in substantial cost to the Company may also be
necessary to enforce any patents to which the Company has rights, or to
determine the scope, validity and unenforceability of other parties' proprietary
rights which may affect the Company's rights to Thiovir United States patents
carry a presumption of validity and generally can be invalidated only through
clear and convincing evidence. The Company's licensors may also have to
participate in interference proceedings declared by the PTO to determine the
priority of an invention, which could result in substantial cost to the Company.
There can be no assurance that the Company's licensed patents would be held
valid by a court or administrative body or that an alleged infringer would be
found to be infringing. The mere uncertainty resulting from the institution and
continuation of any technology- related litigation or interference proceeding
could have material adverse effect on the Company pending resolution of the
disputed matters.
The Company may also rely on unpatented trade secrets and know-how to maintain
its competitive position, which it seeks to protect, in part, by confidentiality
agreements with employees, consultants and others. There can be no assurance
that these agreements will not be breached or terminated, that the Company will
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known or be independently discovered by competitors. See
"BUSINESS -- Patents."
DEPENDENCE ON AND NEED TO HIRE PERSONNEL
The Company is highly dependent on its senior management and scientific
staff, which currently consists of Dr. Francis E. O'Donnell, Jr., Chairman,
President and Chief Executive Officer, Mary Anthony Gray, Executive Vice
President and Chief Operating Officer, and Dr. Charles E. McKenna. Dr. McKenna,
who is the inventor of the patents licensed to the Company of the core
technology for Thiovir and who has directed the research on Thiovir at USC to
date, is a consultant to the Company and only devotes a limited portion of his
time to the Company's business. The Company is highly dependent on the services
of Dr. O'Donnell, Ms. Gray, and Dr. McKenna and the loss of any of their
services would adversely affect the Company. Dr. O'Donnell is serving as Chief
Executive Officer of the Company on an interim basis. The Company is currently
seeking one or more additional executive officers.
To develop and commercialize Thiovir, the Company must hire and retain a
number of additional highly qualified and experienced management and scientific
personnel, consultants and advisors. The Company's ability to attract and retain
qualified personnel is critical to the Company's success. Competition for
qualified individuals is intense, and the Company faces competition from
numerous pharmaceutical and biotechnology companies, universities and other
research institutions. There can be no assurance that the Company will be able
to attract and retain such individuals on acceptable terms or at all, and the
failure to do so would have a material adverse effect on the Company. See
"MANAGEMENT -- Executive Officers and Directors."
BROAD DISCRETION IN USE OF PROCEEDS
The net proceeds of the Offering will be added to the Company's working
capital and will be available for general corporate purposes, including the
Company's drug development program. As of the date of this Prospectus, the
Company cannot specify with certainty the particular uses for the net proceeds
to be added to its working capital. Accordingly, management will have broad
discretion in the application of the net proceeds. See "USE OF PROCEEDS."
RISKS RELATED TO LICENSE AGREEMENT
The agreement pursuant to which the Company has licensed the core technology
for Thiovir permits the Company's licensor, USC, to terminate the agreement
under certain circumstances, such as the failure by the Company to use its
reasonable best efforts to commercialize Thiovir or the occurrence of any other
uncured material breach by the Company. The termination of this agreement would
have a material adverse effect on the Company. The license agreement provides
that the licensor
10
is primarily responsible for obtaining patent protection for the technology
licensed to the Company, and the Company is required to reimburse it for the
costs it incurs in performing these activities. The Company believes that these
costs as well as other costs under the license agreement will be substantial,
and any inability or failure of the Company to pay these costs could result in
the termination of the license agreement. In addition, the license agreement
reserves for the licensor the right to approve sublicenses granted under the
license agreement. Although such approval may not be unreasonably withheld, the
need for such approval may inhibit the Company's development of strategic
relationships necessary for the commercialization of Thiovir. See "BUSINESS --
Research and Development Status and Activities" and -- "Relationship with USC."
LACK OF MANUFACTURING CAPABILITIES
The Company does not have any manufacturing capacity and currently plans to
seek to establish relationships with third party manufacturers for the
manufacture of clinical trial material and the commercial production of Thiovir,
if any. There can be no assurance that the Company will be able to establish
relationships with third party manufacturers on commercially acceptable terms or
that third party manufacturers will be able to manufacture Thiovir on a
cost-effective basis in commercial quantities under good manufacturing practices
("GMPs") mandated by the FDA. The Company's dependence upon third parties for
the manufacture of its products may adversely affect the Company's profit
margins and its ability to develop and commercialize Thiovir on a timely and
competitive basis. Further, there can be no assurance that manufacturing or
quality control problems will not arise in connection with the manufacture of
the Company's products or that third party manufacturers will be able to
maintain the necessary governmental licenses and approvals to continue
manufacturing the Company's products. Any failure to establish relationships
with third parties for its manufacturing requirements on commercially acceptable
terms would have a material adverse effect on the Company. See "BUSINESS --
Manufacturing."
LACK OF SALES AND MARKETING CAPABILITIES
The Company currently has no marketing or sales personnel. The Company will
have to develop a sales force or rely on marketing partners or other
arrangements with third parties for the marketing, distribution and sale of
Thiovir. There can be no assurance that the Company will be able to establish
marketing, distribution or sales capabilities or make arrangements with third
parties to perform those activities on terms satisfactory to the Company, or
that any internal capabilities or third party arrangements will be
cost-effective.
In addition, any third parties with which the Company establishes marketing,
distribution or sales arrangements may have significant control over important
aspects of the commercialization of Thiovir, including market identification,
marketing methods, pricing, composition of sales force and promotional
activities. There can be no assurance that the Company will be able to control
the amount and timing of resources that any third party may devote to the
Company's products or prevent any third party from pursuing alternative
technologies or products that could result in the development of products that
compete with Thiovir and the withdrawal of support for Thiovir. See "BUSINESS --
Sales and Marketing."
DEPENDENCE ON THIRD PARTIES FOR DEVELOPMENT AND MANUFACTURING
The Company intends to engage independent contract research organizations
("CROs") to conduct clinical trials in connection with the development of
Thiovir. As a result, this important aspect of the Company's business will be
outside the direct control of the Company. In addition, there can be no
assurance that the CROs will perform all of their obligations under arrangements
with the Company. See "BUSINESS -- Government Regulation."
NO ASSURANCE OF MARKET ACCEPTANCE
The Company's success will depend in substantial part on the extent to which
Thiovir achieves market acceptance. The degree of market acceptance will depend
upon a number of factors, including the receipt and scope of regulatory
approvals, the establishment and demonstration in the medical community of the
safety and effectiveness of Thiovir and its potential advantages over existing
treatment methods, and
11
reimbursement policies of government and third party payors. There can no be
assurance that physicians, patients, payors or the medical community in general
will accept or utilize Thiovir.
UNCERTAINTY OF HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT
The business and financial condition of pharmaceutical companies will
continue to be affected by the efforts of governments and third party payors to
contain or reduce the cost of health care. A number of legislative and
regulatory proposals aimed at changing the health care system have been proposed
in recent years. In addition, an emphasis on managed care in the United States
has increased and will continue to increase the pressure on pharmaceutical
pricing. While the Company cannot predict whether legislative or regulatory
proposals will be adopted or the effect those proposals or managed care efforts
may have on its business, the announcement and/or adoption of such proposals or
efforts could have a material adverse effect on the Company. In the United
States and elsewhere, sales of prescription pharmaceuticals are dependent in
part on the availability of reimbursement to the consumer from third party
payors, such as government and private insurance plans that mandate
predetermined discounts from list prices. Third party payors are increasingly
challenging the prices charged for medical products and services. If the Company
succeeds in bringing Thiovir to the market, there can be no assurance that it
will be considered cost effective or that reimbursement to the consumer will be
available or will be sufficient to allow the Company to sell its products on a
competitive basis. See "BUSINESS -- Health Care Reform Measures and Third Party
Reimbursement."
ABSENCE OF PRODUCT LIABILITY INSURANCE; INSURANCE RISKS
The Company's business will expose it to potential product liability risks
that are inherent in the testing, manufacturing and marketing of pharmaceutical
products. There can be no assurance that product liability claims will not be
asserted against the Company. The Company does not currently have any product
liability insurance. The Company intends to obtain limited product liability
insurance for its clinical trials when they begin in the United States and to
expand its insurance coverage if and when the Company begins marketing
commercial products. However, there can no be assurance that the Company will be
able to obtain product liability insurance on commercially acceptable terms or
that the Company will be able to maintain such insurance at a reasonable cost or
in sufficient amounts to protect the Company against potential losses. A
successful product liability claim or series of claims brought against the
Company could have a material adverse effect on the Company.
HAZARDOUS MATERIALS
In the event the Company should establish its own laboratory facility to
further its drug development program, such activities will necessarily involve
the use of hazardous materials, chemicals and viruses. Although the Company will
develop procedures for the handling and disposing of such materials to comply
with the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages or fines that result and any such liability could exceed the
resources of the Company.
CONCENTRATION OF STOCK OWNERSHIP; CONTROL OF MANAGEMENT AND EXISTING
STOCKHOLDERS
Upon completion of the Offering and appointing the issuance of the Pending
Shares, the Company's directors, executive officers, other key personnel and
their respective affiliates will beneficially own approximately 30.3% of the
outstanding Common Stock (approximately 29.1% if the Underwriters'
over-allotment option is exercised in full). As a result, these stockholders
will be able to exercise significant influence over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. Such concentration of ownership may also
have the effect of delaying or preventing a change in control of the Company
that may be favored by other stockholders. See "PRINCIPAL STOCKHOLDERS" and
"DESCRIPTION OF SECURITIES -- Delaware Law and Certain Certificate of
Incorporation and Bylaw Provisions."
12
SUBSTANTIAL SHARES OF COMMON STOCK RESERVED FOR THE EXERCISE OF OPTIONS AND
WARRANTS; OBLIGATIONS PURSUANT TO REGISTRATION RIGHTS
The Company has reserved 500,000 shares of Common Stock for issuance upon
the exercise of options granted or available for grant to employees, officers,
directors, advisors and consultants pursuant to the Company's Stock Incentive
Plan (the "Incentive Plan"), as well as an aggregate of 1,900,000 shares of
Common Stock for issuance upon exercise of the (i) Redeemable Warrants, (ii)
Representative's Warrants and (iii) Outstanding Warrants. These options and
warrants may adversely affect the Company's ability to obtain financing in the
future. The holders of such options and warrants can be expected to exercise
them at a time when the Company would otherwise be able to obtain additional
equity capital on terms more favorable to the Company. See "UNDERWRITING" and
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
The Company has agreed that, under certain circumstances, it will register
under federal and state securities laws the Representative's Warrants and the
shares of Common Stock issuable thereunder. In addition, certain shares of
Common Stock previously issued by the Company are subject to registration rights
granted by the Company in connection with the private placement of such
securities. Exercise of these registration rights could involve substantial
expense to the Company at a time when it could not afford such expenditures and
may adversely affect the terms upon which the Company may obtain additional
financing. See "DESCRIPTION OF SECURITIES -- Common Stock."
POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALES;
REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public market
following the Offering could adversely affect the market price of the Common
Stock. Holders of approximately 2,343,440 shares of Common Stock (including the
Pending Shares and the shares issuable upon the exercise of the Outstanding
Warrants) are entitled to include, subject to certain limitations, such shares
in certain registration statements which the Company may use to register
additional shares of Common Stock. In addition, approximately 2,643,440 shares
(including the Pending Shares), will be eligible for resale, subject to
applicable holding periods, in the public market under Rule 144 or Rule 701
under the Securities Act, beginning 90 days after the date of this Prospectus.
1,950,000 shares held by the directors, officers and certain other stockholders
of the Company are subject to agreements which restrict their sale for 12 or 13
months after the date of this Prospectus without the prior written consent of
the Representative. See "UNDERWRITING." The Company intends to file a
registration statement under the Act to register 500,000 shares of Common Stock
reserved for issuance under the Incentive Plan. The Company is unable to
estimate the number of shares which may actually be sold under Rule 144 or Rule
701 or pursuant to registration rights, since this will depend upon the market
price for the Common Stock, the individual circumstances of the sellers and
other factors. Any such sales may have an adverse effect on the Company's
ability to raise needed capital through an offering of its equity or convertible
debt securities and may adversely affect the prevailing market price of the
Common Stock. See "DESCRIPTION OF SECURITIES -- Common Stock."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF REDEEMABLE WARRANTS
The Redeemable Warrants may be redeemed by the Company at any time after
thirteen months from the date hereof at a price of $.20 per Warrant upon 30
days' prior written notice, provided that the closing trading price of the
Common Stock for the 20 consecutive trading day period ending five days prior to
the giving of notice of redemption, equals or exceeds $9.00 per share. Notice of
redemption of the Redeemable Warrants could force the holders to exercise the
Redeemable Warrants at a time when it might be disadvantageous for the holders
to do so or to sell the Redeemable Warrants at their then current market price
when the holders might otherwise wish to hold the Warrants for possible
appreciation. Alternatively, the holders may accept the redemption price, which
is likely to be substantially less than the market value of the Redeemable
Warrants at the time of redemption. Any holders who do not exercise their
Redeemable Warrants prior to their redemption, will forfeit the right to
purchase the shares of Common Stock underlying the Redeemable Warrants. While
the Company may legally be permitted to give notice to redeem the Redeemable
Warrants at a time when a current prospectus is not available, thereby leaving
the Redeemable Warrant holders no opportunity to exercise their Redeemable
Warrants prior to redemption, the Company does not intend to redeem the
Redeemable Warrants unless a current prospectus is available at the time of
redemption. See "DESCRIPTION OF SECURITIES -- Redeemable Warrants."
13
REPRESENTATIVE'S WARRANTS
In connection with this Offering, the Company will sell to the
Representative for a nominal amount the Repressentative Warrants to purchase up
to 100,000 shares of Common Stock and 100,000 Redeemable Warrants. The
Representative's Warrants will be exercisable commencing one year from the
effective date of this Prospectus and will continue to be exercisable until five
years from the date hereof at an exercise price equaling 160% of the public
offering price of the Common Stock and the Redeemable Warrants, respectively.
During the term of the Representative's Warrants, the holders thereof will be
given the opportunity to profit from a rise in the market price of the Common
Stock or Redeemable Warrants with a resulting dilution in the interest of the
Company's other stockholders. The terms on which the Company could obtain
additional capital during the life of the Representative's Warrants may be
adversely affected because the holders of the Representative's Warrants might be
expected to exercise them if the Company were able to obtain any needed
additional capital in a new offering of securities at a price greater than the
exercise price of the Representative's Warrants. See "DESCRIPTION OF SECURITIES
- -- Representative's Warrants."
NO PRIOR MARKET FOR COMMON STOCK AND THE REDEEMABLE WARRANTS
Prior to the Offering, there has been no public market for the Common Stock
or the Redeemable Warrants, and there can be no assurance that an active trading
market will develop or be sustained after the Offering or that investors will be
able to sell the Common Stock or the Redeemable Warrants should they desire to
do so. The initial public offering price was determined by negotiations between
the Company and the Representative and may bear no relationship to the price at
which the Common Stock or the Redeemable Warrants will trade upon completion of
the Offering. See "UNDERWRITING."
VOLATILITY OF STOCK PRICE
The market price of the Common Stock and the Redeemable Warrants is likely
to be highly volatile and could be subject to wide fluctuations in response to
factors concerning the Company or its competitors such as announcements of the
results of clinical trials, developments with respect to patents or proprietary
rights, announcements of technological innovations, new products or new
contracts, actual or anticipated variations in operating results due to a number
of factors including, among others, the level of development expenses, changes
in financial estimates by securities analysts, conditions and trends in the
pharmaceutical and other industries, adoption of new accounting standards
affecting the industry, general market conditions and other factors. The
Company's operating results may also be below the expectations of market
analysts and investors, which would likely have a material adverse effect on the
prevailing market price of the Common Stock or the Redeemable Warrants.
Further, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of equity
securities of many pharmaceutical companies. These price fluctuations often have
been unrelated or disproportionate to the operating performance of such
companies. Market fluctuations, as well as general economic, political and
market conditions such as recessions or international currency fluctuations,
may adversely affect the market price of the Common Stock or the Redeemable
Warrants. In the past, following periods of volatility in the market price of
the securities of companies in the pharmaceutical industry, securities class
action litigation has often been instituted against those companies. Such
litigation, if instituted against the Company, could result in substantial costs
and a diversion of management attention and resources, which would have a
material adverse effect on the Company. The realization of any of the risks
described in these "RISK FACTORS" could have a dramatic and adverse impact on
the market price of the Common Stock or the Redeemable Warrants.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock in the Offerings will suffer immediate and
substantial dilution of $3.82 per share in the net tangible book value of the
Common Stock from the initial public offering price. To the extent that
outstanding options and warrants to purchase the Company's Common Stock are
exercised, there will be further dilution. See "DILUTION."
14
NO DIVIDENDS
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently does not intend to pay any cash dividends in the
foreseeable future and intends to retain its earnings, if any, for the operation
of its business. See "DIVIDEND POLICY."
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
The Company's Certificate of Incorporation authorizes the Company's Board of
Directors (the "Board") to issue shares of undesignated preferred stock without
stockholder approval on such terms as the Board may determine. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any such preferred stock that may be issued in the
future. Moreover, the issuance of preferred stock may make it more difficult for
a third party to acquire, or may discourage a third party from acquiring, a
majority of the voting stock of the Company. The Company's Board is classified
into three classes of directors. With a classified Board, one class of directors
is elected each year with each class serving a three-year term. These and other
provisions of the Certificate of Incorporation and the Bylaws, as well as
certain provisions of Delaware law, could delay or impede the removal of
incumbent directors and could make more difficult a merger, tender offer or
proxy contest involving the Company, even if such events could be beneficial to
the interest of the stockholders. Such provisions could limit the price that
certain investors might be willing to pay in the future for the Common Stock.
See "DESCRIPTION OF SECURITIES -- Delaware Law and Certain Certificate of
Incorporation and Bylaw Provisions."
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES UNDER DELAWARE LAW
Pursuant to the Company's Certificate of Incorporation, as authorized under
applicable Delaware law, directors of the Company are not liable for monetary
damages for breach of fiduciary duty, except in connection with a breach of the
duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for dividend payments or
stock repurchases illegal under Delaware law or for any transaction in which a
director has derived an improper personal benefit. In addition, the Company's
Certificate of Incorporation provides that the Company must indemnify its
officers and directors to the fullest extent permitted by Delaware law for all
expenses incurred in the settlement of any actions against such persons in
connection with their having served as officers or directors of the Company. See
"DESCRIPTION OF SECURITIES -- Delaware Law and Certain Certificate of
Incorporation and Bylaw Provisions."
MAINTENANCE REQUIREMENTS FOR NASDAQ SMALLCAP SECURITIES
It is anticipated that the Common Stock and the Redeemable Warrants will be
approved for listing on the Nasdaq SmallCap Market. An issuer seeking continued
inclusion of its securities on the SmallCap Market is required to meet certain
criteria including (i) total assets of at least $2,000,000; (ii) capital and
surplus of at least $1,000,000; and (iii) a minimum bid price of $1.00 per share
unless the market value of its public float is at least $1,000,000 and it has at
least $2,000,000 in capital and surplus. Upon completion of this Offering, the
Company anticipates that it will satisfy the criteria for continued inclusion of
its securities on the Nasdaq SmallCap Market. However, there can be no assurance
that the Company will continue to satisfy such criteria and for how long. See
"PROSPECTUS SUMMARY -- Summary Financial Information" and "CAPITALIZATION." If
the Company became unable to meet the continued quotation criteria of the
SmallCap Market and was suspended therefrom, the Company's securities could be
subject to a rule that imposes additional sales practice requirements on certain
broker/dealers who sell such securities to persons other than established
customers and accredited investors. Consequently, an investor would likely find
it more difficult to dispose of, or to obtain accurate quotations as to the
value of, the Company's securities.
REQUIRED DISCLOSURE CONCERNING TRADING OF PENNY STOCKS OR LOW-PRICED SECURITIES
The Securities and Exchange Commission (the "Commission") has adopted
regulations that define a "penny stock" to be any equity security that has a
market price (as defined therein) of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
15
the rules require the delivery, prior to the transaction, of a disclosure
schedule prepared by the Commission relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker of the penny
stock, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
While many securities listed on the Nasdaq SmallCap Market would be covered
by the definition of penny stock, transactions in such a security would be
exempt from all but the sole market-maker provision for (i) issuers who have
$2,000,000 in tangible assets ($5,000,000 if the issuer has not been in
continuous operation for three years), (ii) transactions in which the customer
is an institutional accredited investor, and (iii) transactions that are not
recommended by the broker-dealer. In addition, transactions in a SmallCap
security directly with a Nasdaq market-maker for such securities would be
subject only to the sole market-maker disclosure, and the disclosure with
respect to commissions to be paid to the broker-dealer and the registered
representative. Finally, all SmallCap securities would be exempt if The Nasdaq
Stock Market, Inc., the operator of the Nasdaq SmallCap Market, raised its
requirements for continued listing so that any issuer with less than $2,000,000
in net tangible assets or stockholders' equity would be subject to delisting.
These criteria are more stringent than the current maintenance requirements.
Consequently, these rules may restrict the ability of broker-dealers to sell the
Company's securities and may affect the ability of purchasers to sell the
Company's securities in the secondary market.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements herein regarding the time period during which the proceeds from
the Offering will fund the Company's operations and the dates on which the
Company anticipates commencing clinical trials with respect to Thiovir
constitute forward-looking statements under the federal securities laws. Such
statements are subject to certain risks and uncertainties that could cause the
rate at which the Company incurs expenses and the actual timing of clinical
trials to differ materially from those projected. With respect to such dates,
the Company's management team has made certain assumptions regarding, among
other things, the successful and timely completion of preclinical tests, the
approval of an Investigational New Drug Exemption Application ("IND") for
Thiovir by the FDA, the availability of adequate clinical supplies, the absence
of delays in patient enrollment, the availability of the capital resources
necessary to complete the preclinical tests and conduct the clinical trials, the
nature, scope, and number of the preclinical tests and clinical trials required
for FDA approval and the cost of completing these tests and trials. The
Company's ability to proceed with its drug development program in accordance
with the dates anticipated is subject to certain risks, as discussed under the
caption "RISK FACTORS" contained herein, and the Company's ability to estimate
the time period for which the proceeds of the Offering will fund the Company's
operations is subject to substantial uncertainty due to the factors outlined
under the caption "USE OF PROCEEDS" contained herein. Undue reliance should not
be placed on the dates and time periods referenced herein. These estimates are
based on the current expectations of the Company's management team, which may
change in the future due to a large number of potential events, including
unanticipated future developments.
16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby are estimated to be approximately $4,140,000 (approximately $4,805,550 if
the Underwriters' over-allotment option is exercised in full), after deducting
$510,000 for underwriting discounts (approximately $586,500 if the Underwriters'
over-allotment option is exercised in full) and approximately $450,000 for other
estimated offering expenses (approximately $472,950 if the Underwriters'
over-allotment option is exercised in full), including the Representative's
non-accountable expense allowance and the consulting fee payable to the
Representative, and assuming no exercise of the Redeemable Warrants offered
hereby.
The Company intends to use the net proceeds from the Offering, including any
interest thereon, to finance research and development activities with respect to
Thiovir, primarily for preclinical tests and clinical trials designed to satisfy
FDA standards for safety and efficacy, and to provide working capital. Due to
the nature of the drug development and approval process, the Company is unable
to accurately indicate the exact amount of proceeds allocable to each of the
Company's activities. The amounts actually expended for each activity may vary
significantly depending upon numerous factors, including the progress of
development activities, the scope and results of preclinical testing and
clinical trials, the cost, timing and outcome of regulatory agency reviews,
administrative and legal expenses, costs of developing a patent position, the
acquisition of technology that may enhance and/or be compatible with the
Company's then existing technology, the establishment of relationships with
consultants and with third parties for manufacturing and sales and marketing
functions, and on other factors.
Notwithstanding the foregoing, however, the information below constitutes
the Company's best estimate as to the use of the proceeds generated from the
Offering:
<TABLE>
<CAPTION>
ACTIVITY % OF PROCEEDS
-------- -------------
<S> <C>
Testing and Clinical Trials 50
CROs and Consultants 20
General Working Capital 30
</TABLE>
Any net proceeds received from the exercise of the Underwriters'
over-allotment option will be used to supplement general working capital.
The Company believes that the estimated net proceeds of the Offering,
together with its existing cash and short-term investments, will be adequate to
satisfy its anticipated capital requirements at least through December 31, 1998.
See "RISK FACTORS -- Future Capital Needs; Uncertainty of Additional Funding"
and "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS." Pending such uses, the
Company intends to invest proceeds primarily in short-term, investment grade
obligations.
DIVIDEND POLICY
The Company has not declared or paid any dividends on its capital stock. The
Company currently intends to retain all future earnings, if any, to finance
growth and development of its business and, therefore, does not expect to
declare or pay any cash dividends in the foreseeable future. The declaration of
dividends is within the discretion of the Company's Board. See "RISK FACTORS --
No Dividends."
17
DILUTION
At November 30, 1996, the net tangible book value of the Company was
$473,903, or approximately $.18 per share. "Net tangible book value" per share
of Common Stock represents the amount of the Company's total tangible assets,
less the amount of its total liabilities, divided by the number of shares of
Common Stock outstanding. Dilution represents the difference between the amount
per share of Common Stock paid by the new investors purchasing in the Offering
and the pro forma net tangible book value per share of Common Stock after the
Offering. After giving effect to the sale by the Company of the 1,000,000 shares
of Common Stock offered hereby at $5.10(1) per share and the payment of the
estimated expenses related to the Offering of $450,000 but giving no effect to
the issuance of the Pending Shares, the pro forma net tangible book value of the
Company at November 30, 1996 would have been $4,613,903, or $1.28 per share of
Common Stock. This represents an immediate increase in net tangible book value
of $1.10 per share of Common Stock to existing stockholders and an immediate
dilution of $3.82 per share of Common Stock to new investors purchasing Common
Stock in the Offering, as illustrated in the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Price per share in the Offering(1) $ 5.10
Net tangible book value per share before the Offering .18
Increase per share attributable to new investors 1.10
------
Pro forma net tangible book value per share after the Offering 1.28
------
Dilution to new investors $ 3.82
======
</TABLE>
(1) Includes the purchase price of $.10 per Redeemable Warrant.
In the event that the Underwriters exercise the over-allotment option in
full, the pro forma net tangible book value per share of Common Stock after the
Offering (less underwriting commissions and discounts and estimated expenses of
the Offering) would be approximately $1.41 per share, representing an immediate
increase in net tangible book value of approximately $1.23 per share to current
stockholders and an immediate dilution of approximately $3.69 per share to new
investors.
The following table sets forth (i) the number of shares of Common Stock
purchased from the Company by the existing stockholders, and assuming the
issuance of the Pending Shares, the total consideration paid and the average
price per share paid for such shares by the existing stockholders; and (ii) the
number of shares of Common Stock to be sold by the Company in the Offering, the
total consideration to be paid and the average price per share: <TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------
AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
New Investors 1,000,000 27.4% $5,000,000(2) 80.5% $ 5.00
Existing Stockholders 2,643,440 72.6% $1,210,654 19.5% $ 0.46(3)(4)
--------- ----- ---------- -----
Total 3,643,440 100.0% $6,210,654 100.0%
========= ===== ========== =====
(2) Prior to the deduction of expenses relating to the Offering.
(3) Excludes $1,519,050, representing the excess of the fair value of 950,000
shares issued (in August 1996) over cash received of $950, recorded as
research and development expense. See Note 5 of Notes to the Financial
Statements hereto.
(4) Includes 1,950,000 shares of Common Stock previously sold for an average of
$.05 per share, 643,440 shares of Common Stock previously sold for $1.60
per share, and the issuance of the 50,000 Pending Shares at $1.60 per
share.
</TABLE>
The foregoing table excludes shares of Common Stock issuable pursuant to
the exercise of the Outstanding Warrants, none of which are currently
exercisable. As of February 5, 1997, warrants to purchase an aggregate of
700,000 shares of Common Stock at a price of $10.00 per share were outstanding.
None of these warrants are currently exercisable. The table also excludes shares
of Common Stock issuable upon the exercise of up to 500,000 stock options which
may be issued under the Company's Incentive Plan. As of February 5, 1997, the
Company had issued options to purchase an aggregate of 10,000 shares of Common
Stock pursuant to the Incentive Plan and had made commitments to three outside
directors to issue options to purchase an aggregate of 30,000 shares of Common
Stock at exercise prices to be determined, but in any case not less than $5.00
per share.
18
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
November 30, 1996, and the capitalization of the Company as adjusted to reflect
the sale by the Company of the Securities offered hereby and the Pending Shares
and the initial application of the estimated proceeds thereof. See "USE OF
PROCEEDS." This table should be read in conjunction with the Company's Financial
Statements and the Notes thereto included elsewhere herein.
NOVEMBER 30, 1996
-----------------
ACTUAL AS ADJUSTED
------ -----------
Stockholders' equity:
Preferred stock -- $0.01 par value; 1,000,000
shares authorized, actual and as adjusted --
0 shares issued and outstanding $ -- $ --
Common Stock -- $0.01 par value; 25,000,000
shares authorized, actual shares issued and
outstanding 2,593,440 and as adjusted
3,643,440 25,934 36,434
Additional paid-in capital 2,609,739 6,784,743
Deficit during the development stage (2,090,690) (2,090,690)
Subscription receivable (34,496) --
---------- ----------
Total stockholders' equity 510,487 4,730,487
---------- ----------
Total capitalization $ 510,487 $4,730,487
========== ==========
SELECTED FINANCIAL DATA
The following selected financial data of the Company as of and for the
period ended November 30, 1996 is derived from the financial statements that
have been audited by McGladrey & Pullen, LLP, independent auditors. These data
should be read in conjunction with the Company's Financial Statements and the
Notes thereto included elsewhere in this Prospectus and Management's Discussion
and Analysis of Financial Condition and Results of Operations which follow.
STATEMENT OF ACTIVITIES DATA:
PERIOD FROM JULY 5,1996,
DATE OF INCEPTION, TO
NOVEMBER 30, 1996
---------------------
Revenue:
Interest income $ 1,858
Costs and Expense:
Research and development 2,058,980
General and administrative 33,568
2,092,548
Net loss (2,090,690)
Net loss per common share(1) $ (.81)
Shares used in computing net loss per common share(1) 2,593,440
BALANCE SHEET DATA:
NOVEMBER 30, 1996
---------------------
Cash and cash equivalents $ 495,421
Working capital 503,621
Total assets 532,005
Deficit accumulated during the development stage (2,090,690)
Total stockholders' equity 510,487
- ---------
(1) See notes 1 and 4 of Notes to Financial Statements for information
concerning the computation of net loss per common share and shares used in
computing net loss per common share.
(2) As adjusted to reflect the sale of the Common Stock and the Redeemable
Warrants offered hereby and the application of the estimated net proceeds
therefrom. See "USE OF PROCEEDS."
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "SELECTED FINANCIAL DATA"
and the Company's Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
OVERVIEW
The Company is a development stage pharmaceutical company engaged in the
development of a single new antiviral drug candidate called Thiovir. The Company
was incorporated in 1988 but remained a "shell" corporation, i.e. without assets
or liabilities, until July 1996, when it commenced the acquisition of a license
of certain proprietary rights to, and the development of, Thiovir.
The Company is a development stage company, has not derived any revenues
from the sale of products and has relied upon private equity financing for its
capital. As of November 30, 1996, the Company's accumulated deficit was
$2,090,690.
The Company has no operating history upon which an evaluation of the Company
and its prospects can be based. The risks, expenses and difficulties encountered
by companies at an early stage of development must be considered when evaluating
the Company's prospects. There are numerous risks inherent in a development
stage company which is reliant upon the development of a single pharmaceutical
product, including the uncertainties of research and the outcome of preclinical
testing and clinical trials, a lengthy and expensive regulatory approval
process, obtaining and defending a satisfactory patent position, and attracting
and retaining motivated and qualified personnel. See "RISK FACTORS."
The operating expenses of the Company cannot be predicted with certainty and
will depend on several factors, primarily the level of drug development
expenses. Development expenses will depend on the progress and results of the
Company's development, preclinical tests and clinical trials of Thiovir, which
cannot be predicted. Management may be able to control the timing of development
expenses in part by accelerating or decelerating preclinical testing and
clinical trial activities, although attainment of the Company's business
objectives may necessitate pursuit of these activities on an accelerated basis.
RESULTS OF ACTIVITIES
PERIOD FROM JULY 5, 1996, DATE OF INCEPTION, TO NOVEMBER 30, 1996
The Company had interest income of $1,858 in the period ended November 30,
1996.
In August 1996, the Company paid $100,000 in cash and issued, for total cash
consideration of $200, 200,000 shares of its Common Stock and warrants to
purchase an additional 200,000 shares of Common Stock, in consideration of the
grant to the Company of an option to acquire a license of certain rights to the
drug Thiovir. Also in August 1996, the Company issued an additional 750,000
shares of Common Stock for cash consideration of $750 to certain persons
instrumental in the development of Thiovir and the Company's acquisition of the
option to acquire the license of certain rights to Thiovir. Management estimated
the fair value of the 950,000 shares at $1.60 per share for a total of
$1,520,000, based upon the offering price of the Company's Common Stock in a
private placement offering commenced on August 20, 1996. In September 1996, the
Company exercised its option to acquire the license of rights to Thiovir and
paid an additional $440,000 in cash therefor. The Company charged the difference
between the estimated aggregate value and the aggregate cash purchase price of
the 950,000 shares, or $1,519,050, and the cash consideration paid of
approximately $540,000 for the licensing rights, as research and development
expense. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
General and administrative expenses totaled $33,568, primarily consisting of
compensation, travel and office expense.
The Company incurred a net loss of $2,090,690 for the period ended November
30, 1996. With the completion of the Offering, the Company expects to incur a
significant increase in the level of research and development and general and
administrative expenses, which will result in a significantly increased
accumulated deficit.
21
PERIOD FROM INCORPORATION TO JULY 5, 1996, DATE OF INCEPTION
For the period from incorporation (1988) through November 30, 1995, the
Company was inactive, had no capital funds, received no revenues and incurred no
expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its activities since July 5, 1996 primarily from
the net proceeds of private placements of Common Stock. As of November 30, 1996,
the Company had received aggregate cash proceeds of $1,130,654. In July 1996,
three stockholders of the Company contributed a total of $100,200 to the equity
capital of the Company. In October 1996, the Company paid cash of $539,930 and,
in August 1996, issued shares of its Common Stock with a value, net of cash
consideration received for the shares, of $1,519,050 in consideration for
license of certain rights to Thiovir. In October 1996, the Company completed a
private placement of 665,000 shares at $1.60 per share for net proceeds of
$1,015,473, of which $34,496 was receivable at November 30, 1996. At November
30, 1996, the Company's liquidity consisted of total cash and cash equivalents
of $495,421.
The Company expects that its capital requirements will increase
substantially in future periods as the Company funds its drug development
program. The Company's future capital requirements will depend on many factors,
including the progress of the Company's drug development program, the scope and
results of preclinical testing and clinical trials, the cost, timing and outcome
of regulatory reviews, costs of patent prosecution, administrative and legal
expenses, the establishment of capacity for sales and marketing functions, the
establishment of relationships with third parties for manufacturing and sales
and marketing functions, and other factors.
The Company believes that the net proceeds of the Offering together with its
existing cash and short-term investments will be adequate to satisfy its
anticipated capital requirements through at least December 31, 1998. The Company
expects that it may be required to raise substantial additional funds through
equity or debt financings, collaborative arrangements with corporate partners or
from other sources. There can be no assurance that additional funding will be
available on favorable terms from any of these sources or at all. See "RISK
FACTORS -- Future Capital Needs; Uncertainty of Additional Funding" and "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS."
For a discussion of the Company's plan of operation, see "USE OF PROCEEDS."
22
BUSINESS
OVERVIEW
The Company is a development stage pharmaceutical company engaged in the
development of thiophosphonoformic acid ("TPFA"), an anti-viral compound, for
which the Company has adopted the trade name "Thiovir(tm)." The initial focus of
the Company's development activities will be to demonstrate the safety and
efficacy of Thiovir for treatment of patients infected with HIV and patients
showing active infection of CMV, which causes blindness and other conditions.
CMV is primarily manifested among AIDS patients. The Company believes that
Thiovir, if successfully developed and approved for sale, would constitute a
candidate for inclusion in combination drug therapy for HIV/AIDS treatment and
would provide several benefits over existing treatments for CMV, particularly
its potential ability to replace more toxic intravenous treatment with a less
toxic oral treatment. The only development work on Thiovir to date has been
limited laboratory and animal studies conducted by unaffiliated organizations.
Therefore, Thiovir is in an early stage of development.
In the United States, the use and sale of Thiovir is subject to the rules
and regulations of the FDA, and obtaining the necessary FDA approval will
require substantial preclinical tests and clinical trials. The Company expects
to commence clinical trials for Thiovir in 1997. The Company believes that
Thiovir may meet the criteria established by the FDA for accelerated approval.
As a result, the Company may be able to commercialize Thiovir in a shorter time
period than has historically been applicable for a drug that does not meet the
criteria for accelerated approval. See "BUSINESS -- Government Regulation."
Initially, the Company intends to maintain a limited corporate
infrastructure devoted almost exclusively to the development and
commercialization of Thiovir. Accordingly, the Company will engage CROs to
conduct preclinical tests and clinical trials on Thiovir. The Company will also
contract with other companies to manufacture the drug. The Company intends to
rely upon part-time consultants and CROs to provide expertise in designing
appropriate tests and trials and in seeking FDA and other government approval.
Furthermore, the Company does not believe that it will be necessary to develop
an extensive sales and marketing force to promote the sale of Thiovir in the
United States, if and when it may be sold, since the market for HIV/AIDS and CMV
therapies is concentrated among a relatively small number of care providers.
In August 1996, the Company acquired an exclusive worldwide license to
proprietary rights to Thiovir held by the University of Southern California
("USC") from a limited partnership which funded the research and development of
Thiovir. The Company had generated no revenues from the sale of products and, as
of November 30, 1996, has an accumulated deficit of $2,090,690. There can be no
assurance that the Company will ever achieve profitable operations.
The Company's executive offices are located at 10940 Wilshire Boulevard, Los
Angeles, California, pursuant to a short-term lease. The Company expects to
relocate its offices, most likely in the Southern California region, as it hires
additional employees to staff increased operational activity. The Company is a
Delaware corporation and is the successor by merger to a Missouri corporation
which was originally formed in 1988, but remained a "shell" corporation with no
operations, assets or liabilities until its acquisition of license rights to
TPFA.
TARGETED INDICATIONS FOR THIOVIR
HIV/AIDS. AIDS occurs when, through viral replication, the amount of HIV,
i.e. the HIV "viral load," reaches sufficiently high levels. The treatment of
AIDS has increasingly focused on inhibiting two enzymes, known as "protease" and
"reverse transcriptase" ("RT"), the activity of which are necessary to the
process of HIV replication. Initially, AIDS was treated with nucleoside RT
inhibitors, such as AZT. Prior to the introduction of protease inhibitors, RT
inhibitors offered only short-term clinical benefit, were often toxic, and
constituted a costly treatment regimen relative to the derived benefit. Protease
inhibitors
23
have generally not been effective when used alone. However, significant clinical
benefit has been achieved by the use of protease inhibitor drugs in combination
with one or more RT inhibitor drugs, resulting in a dramatically reduced viral
load.
The long-term efficacy of the drugs now being used to reduce HIV viral load
is an unresolved issue. Resistance to one or more drugs being used in
combination drug therapy has been increasingly recognized in some patients due
to HIV's ability to mutate. Patient compliance has also been recognized as a
problem with combination drug therapy because the treatment regimen is complex
and demanding and often results in serious, unwanted side effects. According to
published reports, the recently-introduced combination drug therapies have been
least effective among patients who had previously been subjected to a regimen of
AZT or other nucleoside RT inhibitors. Consequently, the search for new drugs,
and for new combinations of drugs for the treatment of HIV/AIDS, continues at an
intense level of activity.
Thiovir is a non-nucleoside RT inhibitor that has inhibited the replication
of HIV in laboratory tests. As a result of such tests, the Company believes that
the potential exists for Thiovir to be an attractive candidate for inclusion in
combination drug therapy for HIV/AIDS for the following reasons:
* The resistance to combination drug therapies exhibited among patients who
had previously undergone therapy with a nucleoside RT inhibitor may not be
exhibited when the nucleoside RT inhibitor is replaced with a
non-nucleoside RT inhibitor.
* If Thiovir were to prove effective in treating both HIV/AIDS and CMV,
physicians may include Thiovir in a combination drug therapy for its
double effect of treating HIV/AIDS and, on a prophylactic basis, CMV.
* Laboratory studies to date suggest that Thiovir may result in fewer side
effects and, due to its oral availability, may decrease the number of
pills required to be taken in combination drug therapy. Combination drug
therapies typically involve numerous pills taken at least two and
frequently more times a day. Drugs having fewer adverse side effects and
requiring fewer dosages generally lead to significantly better patient
compliance.
CMV. CMV is a virus which resides in most human beings. It is an opportunistic
virus that may become active when the human immune system is weakened.
Consequently, AIDS patients are at considerable risk of active CMV infection.
The primary manifestation of active CMV infection, estimated at 85% of all
manifestations, is in the retina of the eye (CMV retinitis). Other CMV
manifestations include gastrointestinal infection (symptoms include ulcers and
chronic diarrhea) and neurologic infection (encephalitis and other
complications). If untreated, CMV retinitis completely destroys the retina
causing blindness. Treatment controls but does not eliminate CMV, so ongoing
therapy is generally necessary.
Until recently, physicians typically treated CMV retinitis with two drugs,
foscarnet and ganciclovir. In June 1996, the FDA approved a third drug,
cidofovir, for treatment of CMV retinitis. The Company is aware of several other
drugs which are under development for the treatment of CMV retinitis. Foscarnet
is administered on a daily basis by means of a surgically-implanted central
intravenous line due to its low bio-availability, which precludes administration
orally. Central intravenous drug therapy is substantially more burdensome and
costly than oral drug therapy. Ganciclovir is available in both oral and
intravenous forms. Oral administration, however, is typically only used after an
induction period of central intravenous administration. CMV has developed
resistance to ganciclovir in some patients. In addition, ganciclovir has
exhibited bone marrow toxicity in some cases, as does the often-used HIV/AIDS
drug AZT. Consequently, simultaneous use of ganciclovir and AZT has been
reported to compound the immunity problems of the AIDS patient since bone marrow
produces immune cells in the human body. Patients who use ganciclovir may
require administration of immune cell enhancement drugs in order to counteract
the adverse effects of ganciclovir. Cidofovir is administered intravenously or
intravitreally by means of a sustained-release delivery system that is
surgically implanted in the posterior segment of the eye.
The Company believes that, with the exception of oral ganciclovir, none of
the drugs described above are currently administered prophylactically prior to
manifestation of CMV retinitis.
24
The molecular structure of Thiovir is identical to that of foscarnet except
that a single oxygen atom in foscarnet is replaced with a sulfur atom in
Thiovir. To date, laboratory in vitro tests conducted by independent
laboratories on human cell cultures indicate that at certain concentrations
Thiovir is similar to foscarnet in inhibiting CMV replication. Thiovir has also
been shown in animal studies to partially convert to foscarnet within the body.
The potential exists, therefore, that the application of Thiovir will result in
a "double hit," i.e., the portion of Thiovir that transforms to foscarnet and
the portion that retains its original chemical structure would both be present
in the body to control the CMV virus.
The Company believes that the potential exists for the following benefits to
the use of Thiovir in the treatment of CMV:
* Thiovir may be administered orally. Initial animal studies suggest that
Thiovir will demonstrate sufficient oral availability to humans. Oral
dosage is substantially less intrusive and burdensome than intravenous or
invitreal administration.
* Because of the "double hit" effect described above and its oral
availability, Thiovir may prove equally effective at lower, less toxic
doses than are required with foscarnet.
* While Thiovir exhibits some renal toxicity, preliminary animal studies
suggest that Thiovir may involve a lesser degree of adverse, toxic
consequences than other drugs currently being used.
* Use of Thiovir may be significantly less costly than alternative drugs for
many patients because the cost of administration would be insignificant
and the use of immune cell enhancement drugs would not be required.
THE DEVELOPMENT OF THIOVIR IS IN AN EARLY STAGE. TO DATE, ONLY LIMITED
LABORATORY AND ANIMAL STUDIES HAVE BEEN CONDUCTED ON THIOVIR. FURTHER TESTS,
INCLUDING HUMAN CLINICAL TRIALS, WILL BE NECESSARY TO DEMONSTRATE THE ORAL
BIO-AVAILABILITY, THE EFFICACY AND THE TOXICITY AND OTHER SAFETY ATTRIBUTES OF
THE USE OF THIOVIR FOR THE TREATMENT OF HIV/AIDS AND CMV. THERE CAN BE NO
ASSURANCE THAT SUCH TESTS WILL ESTABLISH THAT USE OF THIOVIR WILL RESULT IN
THESE BENEFITS. SEE "RISK FACTORS -- Uncertainty of Product Development" and "
- -- Uncertainties Related to Clinical Trials."
RESEARCH AND DEVELOPMENT STATUS AND ACTIVITIES
Research and development with respect to Thiovir has been performed to date
primarily at USC under the direction of Professor Charles E. McKenna. See
"MANAGEMENT -- Executive Officers, Directors and Key Consultants" and "PRINCIPAL
STOCKHOLDERS." In 1994, PerArdua Investors, L.P., a California limited
partnership (the "Limited Partnership"), was formed to fund the development of
Thiovir through research grants extended to USC. The Limited Partnership
obtained certain rights to obtain an exclusive license of the patents and other
intellectual property rights relating to Thiovir developed at USC. The Company
acquired such rights in August 1996. See "BUSINESS -- Relationship with USC" and
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
In vitro studies conducted at USC have demonstated the ability of Thiovir to
inhibit replication of HIV and CMV and indicating preliminarily that Thiovir may
have favorable oral bio-availability as compared to CMV drugs currently in use.
An effective and relatively simple method of synthesizing Thiovir was also
developed at USC. The proprietary rights of which the Company is the exclusive
licensee include a United States patent for the use of Thiovir for the treatment
of HIV, a U.S. patent on a method of synthesis of Thiovir, a pending patent
application, and certain other patent rights. See "BUSINESS -- Patents."
The Company plans to continue the research and development of Thiovir with a
view to obtaining FDA and other government approval for its sale and use in the
treatment of HIV/AIDS and active CMV infection and to investigate additional
potential therapeutic uses.
The Company is currently developing standard operating procedures for the
production of Thiovir pursuant to GMPs which will meet FDA requirements, and is
designing and planning laboratory and animal studies intended to satisfy Phase I
requirements of the FDA approval process. Those studies, similar in some cases
to the studies already conducted, will have the objective of establishing the
chemical stability of the product and its toxicity and tolerance properties.
Mutagenicity and immunogenicity studies may also be performed if deemed
necessary. The Company expects the completion of these studies and the Phase I
25
process to take six to twelve months, or longer. The production of Thiovir under
GMP standards and the conduct of the Phase I studies will be performed on behalf
of the Company by CROs who have not as yet been identified by the Company. The
results of the studies performed during the Phase I process will be submitted to
the FDA as part of an IND, which must be evaluated and found acceptable by the
FDA before human clinical trials may commence. See "BUSINESS -- Government
Regulation."
RESEARCH AGREEMENT WITH USC
The Company has recently entered into a new research agreement (the
"Research Agreement") with USC with respect to Thiovir. The primary objectives
of the research to be conducted by USC include the following:
* to acquire initial in vitro data relating to the potential use of Thiovir
with other HIV and/or CMV inhibitor drugs as part of a combination
therapy;
* to conduct additional research into potential application of Thiovir for
treatment of other indications, including non-viral targets;
* to transfer to the Company technology related to Thiovir and to continue
patent filings related to Thiovir.
The research at USC will be conducted under the direction of Professor
McKenna and will continue until at least September 30, 1997. The research
is being funded by a grant of approximately $176,000 which has already
been paid by the Company. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
POTENTIAL MARKET FOR THIOVIR
Market Size. The World Health Organization estimated at the end of 1996 that
there were more than 22 million people infected with HIV worldwide, of whom more
than eight million had developed AIDS. The United States Centers for Disease
Control and Prevention has disclosed that through December 1995 more than
500,000 persons in the United States with AIDS had been reported to it and that
approximately 343,000 of them had died. All HIV/AIDS patients represent the
potential market for Thiovir.
There are no reliable figures on the number of AIDS patients in the United
States or in the world with active CMV infection. One estimate published in 1993
suggested that 46% of AIDS patients suffer in the later stages of the disease
from CMV retinitis. Two other 1993 published estimates set forth a range of
20-76% and 11-40%.
Thiovir, as well as the other known drugs used to treat active CMV
infection, will not "cure" CMV; its use would merely control its symptoms.
Consequently, use of Thiovir would be on-going. Because active CMV infection
typically becomes manifest within a patient in the latter stages of AIDS
infection, the use of drug therapy to control CMV, at least until recently, was
inevitably shortened by the death of the patient. Treatment of AIDS patients
using drug combination therapy, however, has recently shown significant clinical
benefits including reduced HIV viral load and increased patient longevity. There
are insufficient data and published reports to determine the effect of these new
therapies on the incidence of new cases of active CMV infection. Similarly,
there is insufficient published information to determine the degree to which
active CMV infection may have gone into remission in those AIDS patients who
have benefited from combination drug therapy, although anecdotal reports
indicate that active CMV infection is not significantly affected among those
patients.
Competition. The segment of the pharmaceutical industry engaged in the
treatment of HIV/AIDS and associated viruses such as CMV is highly competitive
and rapidly changing. If successfully developed and approved as either an CMV or
HIV drug, or for both indications, Thiovir would compete with numerous therapies
now in existence and currently in development.
26
Regarding CMV, Foscarnet is marketed under the name "Foscavir(R)" by Astra
Pharmaceuticals, ganciclovir is marketed under the name "Cytovene(R)" by the
Syntex Division of Hoffman LaRoche, and cidofovir is marketed under the name
"Vistide(R)" by Gilead Sciences. All three companies possess vastly greater
organizations, experience and resources than the Company. See "RISK FACTORS --
Intense Competition; Risk of Technological Change." The rights to other drugs
known by the Company to be the subject of testing for FDA approval for treatment
of CMV retinitis are held by Chiron Vision, Isis Corporation, Gilead Sciences,
Bristol Myers-Squibb and Glaxo-Wellcome. Other drugs that are not known to the
Company may be in various stages of development and testing.
Distributors of HIV/AIDS drugs which have been approved by the FDA include
Glaxo-Wellcome, Merck, Abbott Laboratories, Hoffman LaRoche, Bristol-Myers
Squibb and Boehringer-Ingelheim. These, as well as other companies which can be
expected to gain FDA approval for HIV/AIDS drugs, possess vastly greater
organizations, experience and financial resources than the Company.
The competitive factors which the Company expects to encounter when and if
it obtains government approval for the sale of Thiovir are primarily the
demonstrated efficacy of a product, ease of drug administration, the product's
compatibility with other drugs being administered to HIV/AIDS patients, the
relative degree of a product's adverse side effects, and the cost of using the
drug, which would include associated costs of administration and the cost of
drugs that might be taken to ameliorate adverse side effects.
SALES AND MARKETING
The Company has not yet formulated a specific marketing and sales plan for
Thiovir when and if it obtains governmental approval for Thiovir. Similarly, the
Company has no marketing or sales personnel. In the United States, the medical
care of a substantial percentage of HIV/AIDS patients is concentrated in a
relatively small number of medical facilities located in urban centers and there
is an extensive flow of information within the medical community that regularly
provides care to HIV/AIDS patients regarding the safety and efficacy of existing
and newly-developed therapies. Moreover, HIV/AIDS patients support groups are
active and themselves constitute a source of information on drug therapies. The
Company intends to provide information to the HIV/AIDS medical community and to
support groups on a continuous basis with respect to its progress, if any, in
further developing Thiovir. The Company does not expect that a large and costly
marketing and advertising program will be necessary to acquaint the marketplace
with Thiovir when and if it obtains FDA approval for its sale and use.
MANUFACTURING
The Company does not have any manufacturing capacity or relationships with
third parties and currently plans to seek to establish a relationship with an
unrelated third party manufacturer for the manufacture of clinical trial
material and, in the event FDA approval is received, the commercial production
of Thiovir. There can be no assurance that the Company will be able to establish
a relationship with a third party manufacturer on commercially acceptable terms
or that a third party manufacturer will be able to manufacture products on a
cost-effective basis in commercial quantities under GMPs mandated by the FDA.
The Company does believe, however, that the relatively simple chemical structure
of Thiovir and the methods of synthesizing Thiovir which have been developed and
licensed to the Company will allow an efficient, reliable and cost-effective
manufacturing process. Nevertheless, the Company's dependence upon third parties
for manufacturing may adversely affect the Company's profit margins and its
ability to develop and commercialize Thiovir on a timely and competitive basis.
Further, there can be no assurance that manufacturing or quality control
problems will not arise in connection with the manufacture of Thiovir or that a
third party manufacturer will be able to maintain the necessary government
licenses and approvals to continue manufacturing. Any failure to establish a
relationship with a third party for its manufacturing requirements on
commercially acceptable terms would have a material adverse effect on the
Company. See "RISK FACTORS -- Dependence on Third Parties for Development and
Manufacturing" and "BUSINESS -- Government Regulations."
27
GOVERNMENT REGULATION
The manufacture and sale of Thiovir are subject to government regulations in
the United States and in certain foreign countries. In the United States, the
Company is subject to the rules and regulations established by the FDA requiring
the presentation of data indicating that the Company's products are safe and
efficacious and are manufactured in accordance with the FDA's GMP regulations.
Safety and effectiveness standards are required in certain other countries. The
Company believes that only a limited number of foreign countries have extensive
regulatory requirements, specifically the countries comprising the European
Union and Japan.
The steps required to be taken before a new prescription drug may be
marketed in the United States include (i) preclinical laboratory and animal
tests, (ii) the submission to the FDA of an IND, which must be evaluated and
found acceptable by the FDA before human clinical trials may commence, (iii)
adequate and well-controlled human clinical trials to establish the safety and
effectiveness of the drug, (iv) the submission of an NDA to the FDA and (v) FDA
approval of the NDA. Prior to obtaining FDA approval of an NDA, the facilities
that will be used to manufacture the drug must undergo a preapproval inspection
to ensure compliance with the FDA's GMP regulations.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to assess the safety and effectiveness of the product and its
formulation. The results of the preclinical tests are submitted to the FDA as
part of an IND, and unless the FDA objects, the IND will become effective 30
days following its receipt by the FDA. If the FDA has concerns about the
proposed clinical trial, it may delay the trial and require modifications to the
trial protocol prior to permitting the trial to begin. As a result, there can be
no assurance that the FDA will permit a proposed IND to become effective.
Clinical trials involve the administration of the pharmaceutical product to
healthy volunteers or to patients identified as having the condition for which
the pharmaceutical is being tested. The pharmaceutical is administered under the
supervision of a qualified principal investigator. Clinical trials are conducted
in accordance with protocols previously submitted to the FDA as part of the IND
that detail the objectives of the trial, the parameters used to monitor safety
and the efficacy criteria that are being evaluated. Each clinical trial is
conducted under the auspices of an Institutional Review Board ("IRB") at the
institution at which the trial is conducted. There IRB considers, among other
things ethical factors, the safety of the human subjects and the possible
liability risk for the institution.
Clinical trials are typically conducted in three sequential phases that may
overlap. In Phase I, the initial introduction of the pharmaceutical into healthy
human volunteers, the emphasis is on testing for safety (adverse effects),
dosage tolerance, metabolism, distribution, excretion and clinical pharmacology.
Phase II involves trials in a limited patient population to determine the
effectiveness of the pharmaceutical for specific targeted indications, to
determine dosage tolerance and optimal dosage and to identify possible adverse
side effects and safety risks. In serious diseases such as AIDS, patients
suffering from the disease rather than healthy volunteers are used in Phase I
trials. In addition, Phase I trials may be divided between Phase Ia, in which
single doses of the drug are given, and Phase Ib, in which multiple doses are
given. In the latter instance, some efficacy data may be obtained if the
subjects are patients suffering from the disease rather than healthy volunteers,
and these trials are referred to as "Phase Ib/IIa." After a compound has been
shown in Phase II trials to have an acceptable safety profile and probable
effectiveness, Phase III trials are undertaken to evaluate clinical
effectiveness further and to further test for safety within an expanded patient
population at multiple clinical study sites. The FDA reviews both the clinical
trial plans and the results of the trials at each phase and may discontinue the
trials at any time if there are significant safety issues.
The results of the preclinical tests and clinical trials are submitted to
the FDA in the form of an NDA for marketing approval. The testing and approval
process is likely to require substantial time and effort and there can be no
assurance that any FDA approval will be granted on a timely basis or at all. The
approval process is affected by a number of factors, including the severity of
the disease, the availability of alternative treatments and the risks and
benefits demonstrated in clinical trials. Additional animal studies or clinical
trials may be requested during the FDA review process and may delay marketing
approval. Upon approval, a drug may be marketed only for the approved
indications in the approved dosage forms. Further clinical trials would be
necessary to gain approval for the use of the product for any additional
indications or dosage
28
forms. The FDA may also require post-market reporting and may require
surveillance programs to monitor the side effects of the drug, which may result
in withdrawal of approval.
Many foreign countries also regulate the clinical testing, manufacturing,
marketing and use of pharmaceutical products. The requirements relating to the
conduct of clinical trials, product approval, manufacturing, marketing, pricing
and reimbursement vary widely from country to country. There can be no assurance
that the Company or any third parties with which the Company may establish
collaborative relationships will be able to attain or maintain compliance with
such requirements.
The FDA has developed several regulatory procedures to accelerate the
clinical testing and approval of drugs intended to treat serious or
life-threatening illnesses under certain circumstances. For example, in 1988,
the FDA issued regulations to expedite the development, evaluation and marketing
of drugs for life-threatening and severely debilitating illnesses, especially
where no alternative therapy exists (the "1988 Regulations"). These procedures
encourage early consultation between the IND sponsors and the FDA in the
preclinical testing and clinical trial phases to determine what evidence will be
necessary for marketing approval and to assist the sponsors in designing
clinical trials. Under this program, the FDA works closely with the IND sponsors
to accelerate and condense Phase II clinical trials, which may, in some cases,
eliminate the need to conduct Phase III trials or limit the scope of Phase III
trials. Under the 1988 Regulations, the FDA may require post-marketing clinical
trials (Phase IV trials) to obtain additional information on the drug's risks,
benefits and optimal use.
In 1992, the FDA issued regulations establishing an accelerated NDA approval
procedure for certain drugs under Subpart H of the agency's NDA approval
regulations ("Subpart H Regulations"). The Subpart H Regulations provide for
accelerated NDA approval for new drugs intended to treat serious or
life-threatening diseases where the drugs provide a meaningful therapeutic
advantage over existing treatment. Under this accelerated approval procedure,
the FDA may approve a drug based on evidence from adequate and well-controlled
studies of the drug's effect on a surrogate endpoint that reasonably suggest
clinical benefits, or on evidence of the drug's effect on a clinical endpoint
other than survival or irreversible morbidity. This approval is conditional on
the favorable completion of trials to establish and define the degree of
clinical benefits to the patient. Such post-marketing clinical trials would
usually be underway when the product obtains this accelerated approval. If,
after approval, a post-marketing clinical study establishes that the drug does
not perform as expected, or if post-marketing restrictions are not adhered to or
are not adequate to ensure the safe use of the drug, or other evidence
demonstrates that the product is not safe and/or effective under its conditions
of use, the FDA may withdraw approval. The Subpart H Regulations can complement
the 1988 Regulations for expediting the development, evaluation and marketing of
drugs. These two procedures for expediting the clinical evaluation and approval
of certain drugs may shorten the drug development process by as much as two to
three years.
The Company believes that Thiovir may be a candidate for accelerated
development and/or approval under the 1988 Regulations and/or the Subpart H
Regulations. There can be no assurance, however, that Thiovir ultimately will be
eligible for development and/or approval under these regulations. In addition,
there can be no assurance that Thiovir will be approved by the FDA for marketing
at all or, if approved for marketing, will be approved for marketing sooner than
would be traditionally expected.
Once the sale of a product is approved, the FDA regulates the manufacturing,
marketing and other activities under the Federal Food, Drug, and Cosmetic Act
and the FDA's implementing regulations. The FDA periodically inspects both
domestic and foreign drug manufacturing facilities to ensure compliance with
applicable GMP regulations and other requirements. In addition, manufacturers in
the United States must register with the FDA and submit a list of every drug in
commercial distribution. Foreign manufacturers are subject only to the drug
listing requirement. The Company does not have or currently intend to develop
the facilities to manufacture Thiovir in commercial quantities, and intends to
establish a relationship with a contract manufacturer for the commercial
manufacture of Thiovir. There can be no assurance that the Company's contract
manufacturer will be able to attain or maintain compliance with GMP regulations.
Post-marketing reports are also required to monitor the product's usage and
effects. Product approvals may be withdrawn, or other action as may be ordered,
or sanctions imposed if compliance with regulatory requirements is not
maintained.
29
The Company expects to seek approval for Thiovir by the European Union
contemporaneously with seeking approval by the FDA. The processes and standards
of the European Union are similar to those of the FDA and are subject to the
same uncertainties regarding the time of completion and expenditure of
resources. The Company has no plans at this time to undertake the approval
process for Thiovir in Japan or any other foreign country. The Company may
decide to market Thiovir, prior to obtaining any FDA approval, in certain
foreign countries that do not require regulatory approval, although the Company
does not now have any plans for doing so.
In addition to the import requirements of foreign countries, a company must
also comply with United States laws governing the export of FDA regulated
products. Pursuant to the FDA Export Reform and Enhancement Act of 1996, a drug
that has not obtained FDA approval may be exported to any country in the world
without FDA authorization if the product both complies with the laws of the
importing country and has obtained valid marketing authorization in one of the
following countries: Australia, Canada, Israel, Japan, New Zealand, Switzerland,
South Africa, the European Union, or a country in the European Union, or a
country in the European Economic Area. The FDA is authorized to add countries to
this list in the future. Among other restrictions, a drug that has not obtained
FDA approval may be exported under the new law only if it is not adulterated,
accords to the specifications of the foreign purchaser, complies with the laws
of the importing country, is labeled for export, is manufactured in substantial
compliance with GMP regulations and is not sold in the United States.
PATENTS
Patent protection for Thiovir is an important part of the Company's business
strategy, and the Company's success depends, in part, on the ability of the
Company and its licensors to obtain patent protection for Thiovir, defend
patents once obtained, use patent protections to preclude competitors from
marketing Thiovir or substantially equivalent drugs, operate without infringing
on the patents and proprietary rights of third parties and obtain appropriate
licenses to patents or proprietary rights held by third parties if infringement
would otherwise occur. The proprietary rights of which the Company is the
exclusive licensee include a U.S. patent relating to a method of synthesizing
Thiovir, a U.S. patent for the use of Thiovir for the treatment of HIV, a
pending patent application, and certain other patent rights.
There can be no assurance that all or any of the Company's patent rights are
enforceable, will not be invalidated, or will have sufficient scope to
effectively prevent others from marketing Thiovir or substantially equivalent
drugs. Furthermore, the commercial marketing of therapeutic drugs is a highly
competitive and litigation-prone field. Even if the Company is successful in
establishing and defending its patent position, the costs and management time
associated with such activities may significantly and adversely affect the
financial condition and business operations of the Company. See "RISK FACTORS --
Uncertainty of Patents; Dependence on Patents, Licenses and Proprietary Rights."
The Company is not aware of any United States patent which would be
infringed by the manufacture of Thiovir, pursuant to the method of synthesizing
set forth in the licensed patents rights held by the Company, and the sale and
use of Thiovir for HIV/AIDS and CMV. There can be no assurance, however, that
the Company is aware of all patents or patent applications that may materially
affect the Company's ability to make, use or sell Thiovir. United States patent
applications are confidential while pending in the PTO, and patent applications
filed in foreign countries are often first published six months or more after
filing. Any conflicts resulting from third party patent applications and patents
could significantly reduce the coverage of the patents licensed to the Company
and limit the ability of the Company or its licensor to obtain meaningful patent
protection. If patents are issued to other companies that contain competitive or
conflicting claims, the Company may be required to obtain licenses to these
patents or to develop or obtain alternative technology. There can be no
assurance that the Company will be able to obtain any such license on acceptable
terms or at all. If such licenses are not obtained, the Company could be delayed
in or prevented from pursuing the development or commercialization of Thiovir,
which would have a material adverse effect on the Company.
30
RELATIONSHIP WITH USC
The Company holds an exclusive worldwide license from USC (the "USC License
Agreement") to practice the inventions covered by specified patents related to
TPFA in order to manufacture and sell products for the treatment of viral
infections ("Products"). The Company's exclusive licensing rights are subject
to: (i) nonexclusive rights that may be held by the United States government as
a result of any funding of research related to the inventions, as prescribed by
federal law; and (ii) USC's reserved but non-transferable right to conduct
research relating to the Products. In addition, all sub-licenses granted under
the license must be approved in advance and in writing by USC, but the license
provides that such approval shall not be unreasonably withheld. The Company will
be obligated to pay to USC royalties equal to 1% of any sales of the Products
and 50% of any royalties earned by the Company from any sublicensees. Minimum
annual royalties are payable, starting at $12,500 in 1998 and increasing to
$125,000 in 2001 and each year thereafter.
USC is obligated under the USC License Agreement to file, prosecute and
maintain certain United States patents and, if required by the Company, to file,
prosecute and maintain foreign patents. The Company is obligated to reimburse
USC for the legal expense of patent prosecution, plus a 15% administrative fee.
USC has no obligation to defend any of the patents while the Company has the
right to do so at its own expense (with certain rights to offset a portion of
royalties otherwise owing to USC). The Company has a first right to bring legal
action to enforce the patents, and USC may bring such action if the Company
elects not to exercise its right. The USC License Agreement also extends to the
Company a right-of-first-refusal to obtain an option and license for any
substantial improvements to the subject technology developed by Dr. McKenna on
the same terms and conditions as the USC License Agreement.
In January 1997, the Company entered into a new research agreement with USC
providing for the grant by the Company of $176,000 to fund further research on
Thiovir through September 30, 1997. See "BUSINESS -- Research and Development
Status and Activities."
OTHER PRODUCTS
The Company has no current plans or strategies for developing or acquiring
products other than Thiovir. The Company intends, however, to investigate
potential therapeutic applications of Thiovir other than the treatment of
HIV/AIDS and CMV, some of which have been suggested by in vitro studies. The
Company may explore possibilities of developing or acquiring medical products,
the development and/or marketing of which would be compatible with the
activities of the Company with respect to Thiovir.
HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT
The business and financial condition of pharmaceutical companies will
continue to be affected by the efforts of governments and third party payors to
contain or reduce the cost of health care through various means. A number of
legislative and regulatory proposals aimed at changing the health care system
have been proposed in recent years. In addition, an increasing emphasis on
managed care in the United States has and will continue to increase the pressure
on pharmaceutical pricing. While the Company cannot predict whether legislative
or regulatory proposals will be adopted or the effect such proposals or managed
care efforts may have on its business, the announcement and/or adoption of such
proposals or efforts could have a material adverse effect on the Company. In the
United States and elsewhere, sales of prescription pharmaceuticals are dependent
in part on the availability of reimbursement to the consumer from third party
payors, such as government and private insurance plans that mandate
predetermined discounts from list prices. Third party payors are increasingly
challenging the prices charged for medical products and services. If the Company
succeeds in bringing Thiovir to the market, there can be no assurance that it
will be considered cost effective or that reimbursement to the consumer will be
available or will be sufficient to allow the Company to sell Thiovir on a
competitive and profitable basis. See "RISK FACTORS -- Uncertainty of Health
Care Reform Measures and Third Party Reimbursement."
31
PERSONNEL
The Company currently has two employees. The Company intends to utilize from
time to time the services of consultants and independent contractors to provide
key functions that might otherwise be provided by Company-employed personnel.
The Company's future success will depend in large part upon its ability to
attract and retain highly qualified employees, consultants and independent
contractors. See "RISK FACTORS -- Dependence on and Need to Hire Personnel."
LEGAL PROCEEDINGS
The Company is not involved in any litigation.
32
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY CONSULTANTS
The executive officers, directors and key consultants of the Company and
their ages, as of February 3, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Francis E. O'Donnell, Jr., M.D. 47 Chairman of the Board, President,
Chief Executive Officer and Director
Samuel P. Sears, Jr. 53 Treasurer, Secretary and Director
Mary Anthony Gray 49 Executive Vice-President and Chief
Operating Officer
Emanuela I. Charlton, Ph.D.(1)(2) 63 Director and Consultant
Thomas Quinn (1)(2) 47 Director
W. Howard Lewin, M.D. (1)(2) 76 Director
Charles E. McKenna, Ph.D. 52 Consultant
Thomas D. Wolfe 48 Consultant
- ------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
</TABLE>
Each of the executive officers and directors (other than Dr. Lewin) assumed
their responsibilities with the Company in 1996 at the time of the Company's
acquisition of a license of certain rights to Thiovir. Dr. Lewin became a
director in December 1996.
The Company's Certificate of Incorporation provides that the Board shall be
classified as nearly as possible into three classes, each containing, as nearly
as possible, one-third of the members of the Board. A classified Board is
designed to assure continuity and stability in the Board's leadership and
policies. Emanuela I. Charlton and Thomas Quinn are classified as Class I
directors and shall serve until the 1997 annual meeting of the Company's
stockholders (the "Annual Meeting"); W. Howard Lewin, M.D. and Samuel P. Sears,
Jr. are classified as Class II directors and shall serve until the 1998 Annual
Meeting; and Francis E. O'Donnell, Jr., M.D. is classified as a Class III
director and shall serve until the 1999 Annual Meeting. Each successor to a
director whose term expires at an Annual Meeting will be elected to serve until
the third succeeding Annual Meeting after his or her election and until his or
her successor has been duly elected and qualified. Any director chosen to fill a
vacancy on the Board shall hold office until the next election of the class for
which he or she shall have been chosen, and until his or her successor is duly
elected and qualified. Officers are elected by, and serve at the discretion of,
the Board. No director, executive officer, or significant employee or consultant
is related by blood, marriage or adoption to any other director, executive
officer, or significant employee or consultant.
The following is a brief summary of the background of each director,
executive officer and key consultant of the Company:
FRANCIS E. O'DONNELL, JR., M.D., Chief Executive Officer, President,
Chairman of the Board and Director. Since 1994, Dr. O'Donnell has been the
Medical Director of the O'Donnell Eye Institute and a Clinical Professor,
Department of Ophthalmology, at the St. Louis University School of Medicine. Dr.
O'Donnell also serves as Chairman of the Board of LaserSight, Inc., a publicly
traded corporation which manufactures medical laser equipment and provides
managed medical care services. Dr. O'Donnell is a graduate of St. Louis
University and Johns Hopkins University School of Medicine and is a practicing
ophthalmologist.
33
SAMUEL P. SEARS, JR., Treasurer, Secretary and Director. Since 1994, Mr.
Sears has been employed as the Chief Executive Officer and a director of Star
Tobacco Corporation, a privately-owned manufacturer of tobacco products. From
1993 to 1994, he served as "of Counsel" to the New York law firm of LeBoeuf,
Lamb, Greene & MacRae. Prior to 1993, Mr. Sears was the Managing Partner of the
Boston law firm of Burns & Levinson for over twelve years. He is also a director
of Eye Technology, Inc., a publicly-owned corporation which manufactures
intraocular lenses used in cataract surgery. Mr. Sears is a graduate of Harvard
College and Boston College Law School.
MARY ANTHONY GRAY, Executive Vice-President and Chief Operating Officer.
Since 1991, Ms. Gray has served as a biomedical technology transfer advisor to
the University of Southern California. Since 1986, she has also been a partner
of BioStrategies International, a technology consulting firm. Ms. Gray's prior
experience includes business development and sales positions with the following
companies: Damon Biotech, Inc., Ortho Diagnostics Division of Johnson & Johnson
and the J.T. Baker Instruments Division of Richardson-Merrill Pharmaceuticals.
Ms. Gray holds B.S. and M.S. degrees from the University of Missouri.
EMANUELA I. CHARLTON, PH.D., Director and Consultant. Since 1994, Dr.
Charlton has served as the Director of Regulatory Affairs of LaserSight
Technologies, Inc., a manufacturer of excimer and solid state lasers for
ophthalmic purposes. In addition, since 1991, Dr. Charlton has served as a
director of its parent company, LaserSight, Inc., a publicly traded corporation.
Since 1985, she has been the President of North American Health Resources, Inc.,
a medical affairs consulting firm which she founded. Dr. Charlton has held
positions, primarily in the fields of medical regulatory affairs and medical
research, with the following companies: High Stoy Technological Corporation,
Baxter-Travenol, Inc., Searle Laboratories, Abbott Laboratories and Pfizer
Laboratories. She holds B.A. and M.S. degrees from New York University and a
Ph.D. degree from The Union Institute Graduate School.
THOMAS QUINN, Director. Since 1995, Mr. Quinn has served as Vice President
of Development of Olsten Kimberly Quality Care, a managed health care company.
From 1992 to 1995, Mr. Quinn was Vice President, Marketing and Sales, of
Integrated Health Services, Inc., a managed health care company. From 1989 to
1992, he served as President of Infu Tech, Inc., a national home infusion
therapy company. Mr. Quinn currently serves as a director of LaserSight, Inc., a
publicly-owned corporation. Mr. Quinn holds a B.S. degree from the University of
Pittsburgh.
W. HOWARD LEWIN, M.D., Director. Since 1960, Dr. Lewin has been the
President and Medical Director of Lewin & Milster Ophthalmology, Inc., a private
medical practice. In addition, since 1975, Dr. Lewin has been employed as a
Clinical Professor of Ophthalmology at the St. Louis University School of
Medicine. Dr. Lewin received a B.A. degree from Central College, Fayette,
Missouri and an M.D. degree from the St. Louis University School of Medicine.
CHARLES E. MCKENNA, PH.D., Consultant. Since 1989, Dr. McKenna has been a
Professor of Chemistry at USC. Dr. McKenna is the inventor of the two patents of
which the Company is the exclusive licensee, and he has directed the research of
TPFA conducted at USC pursuant to research grants formerly provided by PerArdua
Investors, L.P., the partnership from which the Company obtained the licenses
related to Thiovir. Dr. McKenna will serve as consultant to the Company for a
period of time ending three years after the date of the Offering or until June
30, 2000, whichever first occurs. Dr. McKenna received a B.A. degree from
Oakland University and a P.H.D. in Chemistry from the University of California
at San Diego.
THOMAS D. WOLFE, Consultant. Since 1993, Mr. Wolfe has been the Chief
Executive Officer of Palmyra Group, Inc., a company providing chemical
engineering process consulting services and related software services. From 1991
to 1993, he was a managing director of HPD, Incorporated, a retailer of
evaporization and crystallization systems. Mr. Wolfe was a founder of PerArdua
Investors, L.P. The Company expects to engage the services of Mr. Wolfe from
time to time to consult on manufacturing, marketing and other matters. Mr. Wolfe
received a B.A. degree in Chemistry from the University of California at San
Diego.
34
Dr. O'Donnell and Mr. Sears expect to devote approximately one-quarter of
their business time to the affairs of the Company. Ms. Gray expects to devote
approximately three-quarters of her business time to the affairs of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has established an Audit Committee and a Compensation Committee,
each composed of at least two independent directors. Currently, the Company's
three outside directors, Mr. Quinn, Dr. Lewin and Dr. Charlton, serve on both
committees. The Audit Committee will recommend the annual appointment of
auditors, with whom the Audit Committee will review the scope of audit and
non-audit assignments and related fees, accounting principles used by the
Company in financial reporting, internal auditing procedures and the adequacy of
the internal control procedures of the Company. The Compensation Committee will
establish salaries, bonuses and other compensation for the Company's executive
officers and administer the Company's Incentive Plan and other employee benefit
plans.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation. No executive officer of the
Company earned or received in excess of $100,000 for any fiscal year ended on or
prior to November 30, 1996. Dr. O'Donnell has not received any compensation from
the Company in any fiscal year. As a group, the Company's executive officers
(three individuals, only one of whom received or earned any compensation) earned
and received $11,230 during the fiscal year ended November 30, 1996, and no
compensation during any prior period.
Stock Option Grants. On August 20, 1996 the Company issued options to
purchase 10,000 shares of the Company's Common Stock to Mary Anthony Gray
pursuant to the Incentive Plan. The options granted have an exercise price of
$7.50 per share. The options granted to Ms. Gray vest on September 3, 1997 and
expire on September 2, 2001. The options were the only options granted by the
Company in the 1996 fiscal year.
Director Compensation. The Company's directors have not been compensated for
the services they provide to the Company. Upon the completion of the Offering,
the Company plans to issue options to acquire 10,000 shares of Common Stock
pursuant to the Incentive Plan to each of Dr. Charlton, Dr. Lewin and Mr. Quinn
at an exercise price to be determined, but not less than $5.00 per share. The
Company's directors receive reimbursement for any out-of-pocket expenses
incurred in attending meetings of the Company's Board.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements. The Company has entered into an employment agreement with Ms. Gray
which provides for monthly compensation of $5,000 and payment of $1,000 for
non-accountable office expenses. This Agreement will terminate upon the earlier
of October 6, 1997 or the completion of the Offering. Assuming the completion of
the Offering, the Company plans to enter into another employment agreement with
Ms. Gray. As of the date hereof, the Company has not entered into any other
employment contracts or any compensatory plans or arrangements relating to the
resignation, retirement or other termination of any of the Company's executive
officers. Similarly, as of the date of this Prospectus, the Company has not
entered into any plan or agreement pursuant to which an executive officer of the
Company will receive any funds upon the change-in-control of the Company or a
change in his or her responsibilities following a change-in-control.
The Company has entered into a consulting agreement (the "McKenna
Agreement") with Charles E. McKenna, Ph.D. which continues until September 30,
1999. The McKenna Agreement provides that Dr. McKenna, who is a Professor of
Chemistry at USC and who is the inventor of the two issued patents to which the
Company holds an exclusive license from USC, will provide consulting services to
the Company upon matters which relate to the field of chemistry and to the
development of Thiovir, subject to his obligations to USC. The Company is
obligated to pay Dr. McKenna a retainer of $5,000 for the period October 1, 1996
through March 31, 1997, $5,000 for the period April 1, 1997 through September
30, 1997, $12,500 for the period October 1, 1997 through September 30, 1998 and
$15,000 for the period October 1, 1998 through September 30, 1999. In addition,
the Company will pay a fee to Dr. McKenna for actual services rendered at the
rate of $1,000 per day or $600 per half day and will reimburse him for
out-of-pocket
35
expenditures incurred in the performance of his services to the Company. The
McKenna Agreement contains (i) certain restrictive covenants limiting Dr.
McKenna's right to engage in the development or commercialization of drugs that
might compete with Thiovir, (ii) confidentiality provisions, and (iii)
provisions relating to the assignment to the Company of certain inventions,
improvements and modifications made by him during the term of the McKenna
Agreement. The rights and obligations of the Company and Dr. McKenna under the
McKenna Agreement are subject to Dr. McKenna's obligations to USC, which include
assignment of all rights to intellectual property he develops in his area of
expertise and restrictions on the amount of time he devotes to consulting
activities. Dr. McKenna is also the principal investigator in the ongoing
research concerning Thiouir being conducted under the Company's sponsored
research agreement with USC. See "BUSINESS -- Relationship with USC" and
"CERTAIN TRANSACTIONS."
INCENTIVE PLAN
On July 5, 1996, the Board adopted and the stockholders of the Company
approved the Company's Incentive Plan. The Incentive Plan provides for the
granting to employees, officers, directors, consultants and certain
non-employees of the Company of (i) options to purchase shares of Common Stock
and (ii) stock appreciation rights ("SARs"). The maximum number of shares of
Common Stock that may be issued pursuant to options and SARs under the Incentive
Plan is 500,000, subject to adjustment in the event of a stock split, stock
dividend or other change in the Common Stock or the capital structure of the
Company. The Incentive Plan will be administered by the Compensation Committee
of the Board of Directors. Subject to the provisions of the Incentive Plan, the
Compensation Committee will be authorized to determine who may participate in
the Incentive Plan, the number and type of awards to each participant, the
schedule on which each award will become exercisable and the terms, conditions
and limitations applicable to each award. The Compensation Committee will have
the exclusive power to interpret the Incentive Plan and to adopt such rules and
regulations as it may deem necessary or appropriate for purposes of
administering the plan. Subject to certain limitations, the Board of Directors
will be authorized to amend, modify or terminate the Incentive Plan to meet any
changes in legal requirements or for any other purpose permitted by law.
Options. Options granted under the Incentive Plan may be either "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, or non-qualified options. Incentive stock options may be
granted only to employees of the Company (including directors who are
employees), while non-qualified options may be granted to non-employee
directors, employees, consultants, advisors and other independent contractors
providing services to the Company. The per share exercise price of the Common
Stock subject to an option granted pursuant to the Incentive Plan is determined
by the Compensation Committee at the time the option is granted. In the case of
incentive stock options, the exercise price must not be less than 100% of the
fair market value of the shares covered thereby at the time the incentive stock
option is granted (but in no event less than par value). "Fair market value"
shall be determined by the Board, or by its designated committee, in good faith
and using any reasonable method. No person who owns, directly or indirectly, at
the time of the granting of an incentive stock option to him, 10% or more of the
total combined voting power of all classes of Common Stock (a "10%
Stockholder"), shall be eligible to receive an incentive stock option under the
Incentive Plan unless the option price is at least 110% of the fair market value
of the Common Stock subject to the option, determined on the date of grant.
Non-qualified options are not subject to this limitation.
No incentive stock option may be transferred by an optionee other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee, the option will be exercisable only by the optionee. In the event of
termination of employment, other than by death or permanent, total disability,
the optionee will have three months after such termination to exercise the
option to the extent it was exercisable on the date of such termination. Upon
termination of employment of an optionee by reason of death or permanent
disability, an option remains exercisable for one year thereafter to the extent
it was exercisable on the date of such termination. No similar limitation
applies to non-qualified options.
Incentive stock options granted under the Incentive Plan cannot be exercised
more than 10 years from the date of grant, except that incentive stock options
issued to a 10% Stockholder are limited to five year terms. All options granted
under the Incentive Plan may provide for the payment of the
36
exercise price in cash, by cash equivalent acceptable to the Company, or by
delivery to the Company of shares of Common Stock already owned by the optionee
having a fair market value equal to the exercise price of the options being
exercised, or by a combination of such methods of payment. Therefore, a
participant may be able to tender shares of Common Stock to purchase additional
shares of Common Stock and may, theoretically, exercise all of his or her stock
options with no additional investment other than his or her original shares. Any
unexercised options that expire or terminate become available once again for
issuance.
Stock Appreciation Rights. Under the Incentive Plan, the Compensation
Committee also may grant SARs either in tandem with an option or alone. SARs
granted in tandem with a stock option may be granted at the same time as the
stock option or at a later time. A SAR entitles the participant to receive from
the Company an amount payable in cash, in shares of Common Stock or in a
combination of cash and Common Stock equal to the positive difference between
the fair market value of a share of Common Stock on the date of exercise and the
grant price.
Tax Consequences. No income is recognized by a participant at the time an
option is granted. If the option is an incentive stock option, no income will be
recognized upon the participant's exercise of the option. Income is recognized
by a participant when he or she disposes of shares acquired under an incentive
stock option. The exercise of a nonqualified stock option generally is a taxable
event that requires the participant to recognize, as ordinary income, the
difference between the shares' fair market value and the option price. No income
is recognized upon the grant of an SAR. The exercise of an SAR generally is a
taxable event. The participant generally must recognize income equal to any cash
that is paid and the fair market value of Common Stock that is received in
settlement of an SAR. The Company will be entitled to claim a federal income tax
deduction on account of the exercise of a nonqualified option or SAR. The amount
of the deduction is equal to the ordinary income recognized by the participant.
The Company will not be entitled to a federal income tax deduction on account of
the grant or the exercise of an incentive stock option. The Company may claim a
federal income tax deduction on account of certain dispositions of stock issued
upon the exercise of an incentive stock option.
Change in Control Provisions. In the event of a "change in control"
transaction, the unexercised portion of all outstanding options and SARs granted
pursuant to the Incentive Plan will be fully vested and immediately exercisable
as of the date which shall be 15 days prior to the date on which the "change in
control" transaction (as defined below) occurs, after which date all outstanding
options and SARs will immediately terminate as to any portion thereof not
exercised. In the event a "change in control" transaction does not occur, the
issuance of shares of Common Stock pursuant to the exercise of accelerated
options and all payments made pursuant to accelerated SARs shall be rescinded
and each option and SAR shall remain in effect in accordance with its terms and
conditions in effect prior to any acceleration of vesting. A "change in control"
transaction is defined to constitute any of the following: (i) a merger or
consolidation in which holders of outstanding voting stock of the Company would
receive less than 50% of the voting stock of the surviving or resulting
corporation; (ii) adoption by the Company of a plan of liquidation or approval
of the dissolution of the Company; (iii) the sale or transfer of substantially
all of the assets of the Company; or (iv) a tender offer or exchange offer for
shares of Common Stock of the Company other than any such offer made by the
Company or any corporation affiliated with the Company.
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES
Pursuant to the Company's Certificate of Incorporation and the Delaware
General Corporation Law, directors of the Company are not liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty, except
for liability in connection with a breach of loyalty, for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, or for dividend payments or stock repurchases in violation of Delaware law
or for any transaction in which a director has derived an improper personal
benefit.
37
In addition, the Company's Certificate of Incorporation includes provisions
to indemnify its officers and directors and other persons against expenses,
judgments, fines and amounts paid in settlement in connection with threatened,
pending or completed suits or proceedings against such persons by reason of
serving or having served as officers, directors or in other capacities, except
in relation to matters with respect to which such persons shall be determined
not to have acted in good faith, lawfully or in the best interests of the
Company. Except in the event indemnification is ordered by a court, the
Company's Certificate of Incorporation provides for indemnification only to the
extent that the Company determines that such person acted in good faith and in a
manner not opposed to the best interests of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
Currently, there is no pending litigation or proceeding involving a director
or officer of the Company as to which indemnification is being sought, nor is
the Company aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
38
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus and as adjusted
to reflect the sale of the Common Stock offered hereby of (i) each person who is
known by the Company to own of record or beneficially more than five percent
(5%) of the Common Stock, (ii) each director and executive officer of the
Company and (iii) all directors and executive officers of the Company as a
group. Unless otherwise indicated, each of the persons or entities listed below
has sole voting and investment power with respect to all shares shown
beneficially owned by them, except to the extent such power is shared by a
spouse under applicable law. The table also shows ownership of outstanding
warrants to purchase shares of Common Stock at $10.00 per share, provided that
the Company has obtained FDA approval for a drug product.
<TABLE>
<CAPTION>
PERCENT OF SHARES
OUTSTANDING(1)
---------------
NUMBER OF BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(2) OFFERING(2) OFFERING(2)
- ------------------------------------ ---------- ------------ ------------
<S> <C> <C> <C>
Francis E. O'Donnell, Jr., M.D.(3)(4) 280,000 10.6% 7.7%
Samuel P. Sears, Jr.(3) 50,000 1.9 1.4
Thomas L. DePetrillo(5) 411,250 15.6 11.3
Mary Anthony Gray(3)(6) 110,000 4.2 3.0
*Charles E. McKenna, Ph.D.(7) 320,000 12.1 8.8
Thomas D. Wolfe(8) 328,930 12.4 9.0
W. Howard Lewin M.D.(9) 5,000 * *
Thomas Quinn(10) 5,000 * *
Emanuela I. Charlton, Ph.D.(11) 5,000 * *
The Starwood Trust(12) 275,000 10.4 7.5
Yuan Lin(13) 200,000 7.6 5.5
All Directors and Officers as a Group (6 persons) 455,000 17.2 12.5
- -----------------
* Less than 1%.
(1) Assumes issuance of the Pending Shares.
(2) Pursuant to the SEC rules, shares of Common Stock which an individual or
group has the right to acquire within 60 days pursuant to the exercise of
warrants or options are deemed to be outstanding for the purpose of
computing the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person in the table.
(3) The beneficial owner's address is: c/o PerArdua Corporation, 10940 Wilshire
Boulevard, Los Angeles, California 90024.
(4) Of such shares, 210,000 shares are held by Kathleen O'Donnell as trustee of
the Irrevocable Trust #4 f/b/o Francis E. O'Donnell, Jr. In addition, 75,000
shares are held by Kathleen O'Donnell as trustee of the Francis E. O'Donnell
Descendants Trust. Dr. O'Donnell disclaims beneficial ownership of such
shares.
(5) Includes 31,250 shares of Common Stock held by Mr. DePetrillo's spouse. Mr.
DePetrillo disclaims beneficial ownership of such shares. Mr. DePetrillo's
address is: 2 Charles Street, Providence, Rhode Island 02904.
(6) Excludes an option to purchase 10,000 shares of Common Stock at an exercise
price of $7.50 per share. Such option expires on September 2, 2001.
(7) Dr. McKenna's address is 16625 Pequeno Place, Pacific Palisades, California
90272.
(8) Mr. Wolfe's address is 16288 Gleko Road, Rough and Ready, California 95975.
(9) Dr. Lewin's address is #8 Ridgecreek, St. Louis, Missouri 63141.
39
(10) Mr. Quinn's address is Nine Corland Trials, Mahwah, New Jersey 07430.
(11) Dr. Charlton's address is 619 Long Lake Drive, Oviedo, Forida 32765.
(12) The Starwood Trust's address is 16 South Market Street, Petersburg,
Virginia 23803.
(13) Ms. Lin's address is 730 Willow Run Lane, Winter Springs, Florida 32708.
</TABLE>
The table above does not contain Outstanding Warrants issued to the
individuals referenced therein, which are not exercisable until the Company
receives FDA approval for the sale of Thiovir. These Outstanding Warrants have
been issued as follows:
<TABLE>
<CAPTION>
NAME NUMBER OF OUTSTANDING WARRANTS
---- ------------------------------
<S> <C>
Francis E. O'Donnell, Jr., M.D. 150,000
Thomas L. DePetrillo 200,000
Thomas D. Wolfe 8,930
</TABLE>
40
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1996, the Company issued to three of the then stockholders of the
Company warrants to purchase an aggregate of 500,000 shares of Common Stock. The
recipients of these warrants, each of whom paid no consideration for their
issuance, were Francis E. O'Donnell, Jr., M.D., (warrants to purchase 150,000
shares of Common Stock), The Starwood Trust (warrants to purchase 150,000
shares of Common Stock), and Thomas L. DePetrillo (warrants to purchase 200,000
shares of Common Stock). See "MANAGEMENT" and "PRINCIPAL STOCKHOLDERS."
Pursuant to an Option and Asset Purchase Agreement, dated July 8, 1996 (the
"Acquisition Agreement"), the Company acquired certain rights of the Limited
Partnership. Prior to such acquisition, the Limited Partnership was unaffiliated
with the Company and had been formed and operated for the purpose of conducting
research and development on Thiovir, primarily through research grants to USC.
The Company acquired an assignment of the Limited Partnership's rights and
obligations under an Option and License Agreement by and between the Limited
Partnership and USC. See "BUSINESS -- Relationship with USC." The Acquisition
Agreement granted to the Company, in consideration of $100,000, an option, which
was exercised, to acquire the rights for $350,000 plus reimbursement for
specified liabilities which totaled $90,000, for a total purchase price of
$440,000. Simultaneously with the closing of the acquisition of the rights
pursuant to the Acquisition Agreement, the Company entered into a Stockholders'
Agreement (the "Stockholders' Agreement") with all of its then stockholders, the
limited partners of the Limited Partnership (the "Limited Partners"), USC,
Charles E. McKenna, Ph.D., Mary Anthony Gray, and Thomas D. Wolfe, the latter of
whom was also a Limited Partner. See "MANAGEMENT" and "PRINCIPAL STOCKHOLDERS."
Under the terms of the Stockholders' Agreement, the Limited Partners were
granted the right to acquire a total of 192,000 shares of Common Stock and
192,000 Outstanding Warrants for total consideration of $192.00; USC was granted
the right to acquire 8,000 shares of Common Stock and 8,000 Outstanding Warrants
for total consideration of $8.00; and Dr. McKenna, Ms. Gray and Mr. Wolfe were
granted the right to acquire 320,000, 110,000 and 320,000 shares of Common
Stock, respectively, for total consideration of $320.00, $110.00, and $320.00,
respectively. All such rights to acquire shares of Common Stock and Outstanding
Warrants were exercised. All persons to whom shares of Common Stock and
Outstanding Warrants were issued upon the exercise of such rights are entitled
to certain registration rights with respect to the Common Stock issued and
issuable upon exercise of the Oustanding Warrants. See "DESCRIPTION OF
SECURITIES" -- Common Stock." Mr. Wolfe received, as a Limited Partner, 8,930
shares of Common Stock and 8,930 Oustanding Warrants in addition to the 320,000
shares of Common Stock he acquired directly from the Company. Dr. McKenna and
Mr. Wolfe are consultants to the Company, and Ms. Gray is an executive officer
of the Company. See "MANAGEMENT" and "PRINCIPAL STOCKHOLDERS."
In January 1997, the Company entered into a Research Agreement with USC
providing for the grant by the Company to USC of $176,000 for continued research
and development of Thiovir. See "BUSINESS -- Relationship with USC." Dr. McKenna
is the principal investigator under the research grant and, as such, it is
expected that he will receive salary and other benefits, estimated at less than
$25,000, funded by the Company's research grant. See "MANAGEMENT" and "PRINCIPAL
STOCKHOLDERS." In addition, the Company has entered into a consulting agreement
with Dr. McKenna. Pursuant to this agreement, Dr. McKenna will provide
consulting services related to the development of Thiovir for a term ending
September 30, 1999. The Company will pay Dr. McKenna a semi-annual retainer and
an hourly fee in consideration of such services. See "MANAGEMENT -- Executive
Compensation and Other Information."
Emanuela I. Charlton, Ph.D., a director of the Company, has provided
consulting services to the Company for total fees of $3,000 to date. The Company
expects Dr. Charlton to provide on-going consulting services to the Company
primarily with respect to the FDA regulatory process in consideration for fees
to be negotiated. See "MANAGEMENT" and "PRINCIPAL STOCKHOLDERS."
Samuel P. Sears, Jr., a director and executive officer of the Company, Mr.
Sears received, in June 1996, 50,000 shares of Common Stock from certain other
stockholders of the Company without paying any monetary consideration therefor
as an inducement for Mr. Sears to become involved with the management of the
Company. See "MANAGEMENT" and "PRINCIPAL STOCKHOLDERS."
41
Each of Emanuela I. Charlton, Ph.D., Thomas Quinn and W. Howard Lewin, M.D.,
directors of the Company, received 5,000 shares of the Company's Common Stock
from certain stockholders of the Company without paying any monetary
consideration therefor as an inducement to join the Company's Board. In
addition, the Board intends to grant to each of Drs. Charlton and Lewin and Mr.
Quinn, as of the date of completion of the Offering, options to acquire 10,000
shares of Common Stock of the Company at an exercise price to be determined, but
in no case less than $5.00 per share, pursuant to the terms of the Company's
Incentive Plan.
The Company believes that all of the transactions noted above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties.
42
DESCRIPTION OF SECURITIES
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Certificate of
Incorporation.
COMMON STOCK
The Company is authorized to issue up to 25,000,000 shares of Common Stock,
$.01 par value per share. As of the date of this Prospectus, without giving
effect to the Pending Shares, 2,593,440 shares of Common Stock are issued and
outstanding and held by 42 stockholders of record. Upon the completion of the
Offering, without giving effect to the Pending Shares, 3,593,440 shares of
Common Stock will be outstanding.
The holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors, with the result that the holders of
more than fifty percent of the shares voting for the election of directors can
elect all of the directors. Subject to the prior rights of any series of
Preferred Stock which may from time to time be outstanding, if any, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board out of funds legally available therefor and in the event of
liquidation, dissolution, or winding up of the Company, are entitled to share
ratably in all assets remaining after payment of liabilities and payment of
accrued dividends and liquidation preferences on the Preferred Stock, if any.
Holders of Common Stock have no preemptive rights and have no rights to convert
their Common Stock into any other securities. All of the outstanding shares of
Common Stock are, and the shares of Common Stock to be outstanding upon
completion of the Offering will be, validly issued, fully paid and
nonassessable.
Prior to the Offering and assuming the issuance of Pending Shares, the
Company's current principal stockholders beneficially owned approximately 75.2%
of the outstanding shares of Common Stock of the Company. Subsequent to the
Offering, the Company's current principal stockholders will beneficially own
54.6% of the outstanding shares of the Common Stock of the Company (53.2% if the
Underwriters' over-allotment option is exercised in full). As a result, they
will likely be able to control all matters requiring approval by the
stockholders of the Company, including the election of directors.
Upon the completion of the Offering, holders of approximately 2,343,440
shares of Common Stock (including the Pending Shares and the shares issuable
upon the exercise of the Outstanding Warrants) will be entitled to certain
rights with respect to the registration of such shares under the Securities Act,
subject to certain limitations. If the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other security holders exercising registration rights, such holders
are entitled to notice of such registration and are entitled to include shares
therein. These rights are subject to certain conditions and limitations,
including, in certain circumstances, the right of the underwriters of an
offering to limit the number of shares included in such registration or exclude
all shares.
The holders of the Representative's Warrants also have the right for a
period of seven years from the effective date of this Prospectus, to include
shares of Common Stock issuable upon exercise of the Representative's Warrants
or the Redeemable Warrants underlying the Representative's Warrants (the
"Underlying Securities") as part of certain other registered offerings of
securities commenced by the Company. In addition, for a period of five years
from the effective date of this Prospectus, upon written demand of holders
representing a majority of the Representative's Warrants, the Company has
agreed, on one occasion, to promptly register the Underlying Securities at the
Company's expense. Upon receipt of such a request, the Company has agreed to use
its best efforts to file a registration statement registering the Underlying
Securities. Finally, for a period of five years from the effective date of this
Prospectus, upon written demand of any holder of the Representative's Warrants,
the Company has agreed, on one occasion, to promptly register the Underlying
Securities solely at the expense of such holder.
43
REDEEMABLE WARRANTS
The following summary description of certain provisions of the Redeemable
Warrants is believed to reflect all material provisions of the Redeemable
Warrants, but is not necessarily complete and reference is made to the Warrant
Agreement (the "Warrant Agreement") by and between the Company and American
Securities Transfer & Trust, Inc. (the "Transfer Agent"). The Warrant Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part for a detailed description thereof.
Each Redeemable Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $6.50 per share. Unless the Redeemable
Warrants are redeemed as provided below, the Redeemable Warrants may be
exercised at any time on or before ______ 2002, at which time the Redeemable
Warrants expire.
The Redeemable Warrants are redeemable by the Company at $.20 per Redeemable
Warrant upon 30 days prior written notice, provided that the average closing bid
price of the Common Stock equals or exceeds $9.00 per share for a 20 consecutive
day trading period ending within 10 days prior to the notice of redemption. For
purposes of the Warrant Agreement, "average closing bid price" is defined as the
closing bid price as quoted on the Nasdaq SmallCap Market. The Redeemable
Warrants may not be redeemed unless they are then exercisable and a current
prospectus covering the Redeemable Warrants and the shares of Common Stock
issuable thereunder is then in effect. The Redeemable Warrants will remain
exercisable until the close of business on the fifth business day prior to the
date of redemption. Redemption of the Redeemable Warrants may force the holders
to exercise the Redeemable Warrants and pay the exercise price at a time when it
may be disadvantageous for them to do so or sell the Redeemable Warrants at the
current market price when they might otherwise desire to hold the Redeemable
Warrants.
Upon the exercise of the Redeemable Warrants more than one year after this
Offering and to the extent not inconsistent with the guidelines of the National
Association of Securities Dealers, Inc., and the rules and regulations of the
Commission, the Company has agreed to pay the Representative a commission equal
to five percent of the exercise price of the Redeemable Warrants. However, no
compensation will be paid to the Representative in connection with the exercise
of the Redeemable Warrants if (a) the market price of the underlying shares of
Common Stock is lower than the exercise price, (b) the Redeemable Warrants are
exercised in an unsolicited transaction, or (c) the Redeemable Warrants are held
in any discretionary accounts and (d) advance disclosure is made to a Redeemable
Warrant holder. In addition, unless granted an exemption by the Commission from
Rule 10b-6 under the Exchange Act, the Representative will be prohibited from
engaging in any market making activities or solicited brokerage activities with
regard to the Company's securities for a period of two to nine days before the
solicitation of the exercise of any Redeemable Warrant or before the exercise of
any Redeemable Warrant based upon a prior solicitation, until the later of the
termination of such solicitation activity or the termination by waiver or
otherwise of any right the Representatives may have to receive a fee for the
exercise of the Redeemable Warrants following such solicitation.
The holders of the Redeemable Warrants will not have any of the rights or
privileges of stockholders of the Company (except to the extent they otherwise
own Common Stock) prior to the exercise of the Redeemable Warrants. The
Redeemable Warrants will be entitled to the benefit of adjustments in the
exercise price and in the number of shares of Common Stock deliverable upon the
exercise thereof upon the occurrence of certain events, including a stock
dividend, stock split or similar reorganization.
In order for a holder to exercise a Redeemable Warrant, there must be a current
registration statement on file with the Commission and various state securities
commissions to register the shares of Common Stock underlying the Redeemable
Warrants for sale to the holder of the Redeemable Warrant. Pursuant to Section
10(a)(3) of the Securities Act, the information contained in this Prospectus
will be deemed "stale" nine months from the date of this Prospectus. The Company
has agreed, so long as the Redeemable Warrants are
44
outstanding, to use its best efforts to keep a registration statement effective
under the Securities Act and state securities laws to permit the issuance of the
shares of Common Stock upon exercise or exchange of the Redeemable Warrants.
Nevertheless, although the Company intends to do so, no assurance can be given
that the registration statement will be kept current, the failure of which may
result in the Redeemable Warrants not being exercisable or exchangeable and
therefore worthless.
REPRESENTATIVE'S WARRANTS
In connection with this Offering, the Company has agreed to sell to the
Representative, at a price of $.001 per warrant, warrants to purchase from the
Company 100,000 shares of Common Stock and 100,000 Redeemable Warrants (the
"Representative's Warrants"). The Representative's Warrants are exercisable at a
price of $8.00 per share of Common Stock and $.16 per Redeemable Warrant (160%
of the respective initial public offering price of the Securities) for a period
of four years commencing one year from the effective date of this Prospectus.
The shares of Common Stock and the Redeemable Warrants issuable upon exercise of
the Representative's Warrants are identical to those offered hereby except for
the exercise prices and that the Redeemable Warrants contained therein cannot be
redeemed.
The Company has agreed to register, at its expense, under the Securities
Act, the Representative's Warrants and/or the securities underlying the
Representative's Warrants at the request of a majority in interest of the
holders thereof. Such request may be made at any time during a period ending
five years from the effective date of this Prospectus. In addition, for a five
year period following the effective date of this Prospectus, upon written demand
of any holder(s) of the Representative's Warrants, the Company has agreed, on
one occasion, to promptly register the underlying securities for purposes of a
public offering, solely at the expense of such holder(s). The Company also
granted the Representative "piggyback" registration rights concerning the
Representative's Warrants and the underlying securities which may be exercised
at any time during a seven year period after the effective date of this
Prospectus.
For the term of the Representative's Warrants, the holder thereof has the
opportunity to profit from a rise in the market price of the Company's
securities which may result in a dilution of the interest of the stockholders.
The Company may find it more difficult to raise additional equity capital if it
should be needed for the business of the Company while the Representative's
Warrants are outstanding. At any time when the holders thereof might be expected
to exercise it, the Company would probably be able to obtain additional equity
capital on terms more favorable than those provided by the Representative's
Warrants. See "RISK FACTORS -- Representative's Warrants."
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, $.01 par value per share, none of which are issued and outstanding as of
the date of this Prospectus. The Preferred Stock may be issued in one or more
series, the terms of which may be determined at the time of issuance by the
Board, without further action by the stockholders, and may include voting rights
(including the right to vote as a series on particular matters), preferences as
to dividends and liquidation, conversion, redemption rights and sinking fund
provisions. The Company has no present plans for the issuance of any shares of
Preferred Stock. The issuance of any such Preferred Stock could reduce the
rights, including voting rights, of the holders of Common Stock, and, therefore,
reduce the value of the Common Stock. In particular, specific rights granted to
future holders of Preferred Stock could be used to restrict the Company's
ability to merge with or sell its assets to a third party, thereby preserving
control of the Company's existing management. See "RISK FACTORS -- Anti-Takeover
Effects of Certificate of Incorporation, Bylaws and Delaware Law."
DELAWARE LAW AND CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Certain provisions of the Delaware General Corporation Law, the Company's
Certificate of Incorporation, Bylaws and the Incentive Plan, may be deemed to
have an anti-takeover effect and may delay, defer or prevent a hostile tender
offer or takeover attempt that a stockholder might consider in his or her best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
45
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law ("Section 203") applies
to a Delaware corporation with a class of voting stock listed on a national
securities exchange, authorized for quotation on an interdealer quotation system
or held of record by 2,000 or more persons. In general, Section 203 prevents an
"interested stockholder" (defined generally as any person owning, or who is an
affiliate or associate of the corporation and has owned in the preceding three
years, 15 percent or more of a corporation's outstanding voting stock and
affiliates and associates of such person) from engaging in a "business
transaction" (as defined therein) with a Delaware corporation for three years
following the date such person became an interested stockholder unless (1)
before such person became an interested stockholder, the board of directors of
the corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder; (2) upon
consummation of the transaction which resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owned at least 85
percent of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the rights to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (3) on or subsequent to
the date such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above do not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors.
SPECIAL MEETING OF STOCKHOLDERS
The Company's Bylaws provide that special meetings of the stockholders of
the Company may be called only by the Board. This provision will make it more
difficult for stockholders to take action opposed by the Board.
STOCKHOLDER ACTION BY WRITTEN CONSENT
The Certificate of Incorporation provides that no action required or
permitted to be taken at an annual or special meeting of the stockholders of the
Company may be taken without a meeting.
CLASSIFIED BOARD OF DIRECTORS
The Company's Certificate of Incorporation provides for the Board to be
divided into three classes of directors serving staggered three year terms. As a
result, approximately one-third of the Board will be elected each year.
Moreover, under the Delaware General Corporate Law, in the case of a corporation
having a classified Board, stockholders may remove a director only for cause.
This provision, when coupled with the provision of the Company's Bylaws
authorizing only the Board to fill vacant directorships (subject to the rights
of the holders of Preferred Stock), will preclude a stockholder from removing
incumbent directors without cause and simultaneously gaining control of the
Board by filling the vacancies created by such removal with its own nominees.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The Company's Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or a special meeting of stockholders, must provide
timely notice thereof in writing and be present at such meeting, either in
person or by representative. For the first Annual Meeting following the
Offering, a stockholder's notice shall be timely if delivered to, or mailed to
and received by, the Company at its principal executive office not later than
the close of business on the later of (A) the 75th day prior to the
46
scheduled date of such Annual Meeting or (B) the 15th day following the day
on which public announcement of the date of such of such Annual Meeting is first
made by the Company. For all subsequent annual meetings, a stockholder's notice
shall be timely if delivered to, or mailed to and received by, the Company at
its principal executive office not less than 75 days nor more than 120 days
prior to the anniversary date of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Company at its
principal executive office not later than the close of business on the later of
(A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Company. These provisions may preclude some
stockholders from bringing matters before the stockholders at an annual or
special meeting or from making nominations for directors at an annual or special
meeting.
AMENDMENTS TO THE BYLAWS
The Company's Certificate of Incorporation and Bylaws provide that subject
to the rights of the holders of Preferred Stock, the majority of all directors
or the vote of holders of two-thirds of the outstanding stock entitled to vote
is required to alter, amend or repeal the Bylaws; provided, however, if the
Board has previously recommended the action to be taken to the Company's
stockholders, the affirmative vote of a majority of the stockholders may amend
or repeal the Company's Bylaws.
TRANSFER AGENT AND REGISTRAR
American Securities Transfer & Trust, Inc. will serve as the Company's
transfer agent and registrar.
47
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Schneider
Securities, Inc. is acting as the Representative, have severally agreed, subject
to the terms and conditions of the Underwriting Agreement (the form of which has
been filed as an exhibit to the Registration Statement), to purchase from the
Company the respective numbers of shares of Common Stock and Redeemable Warrants
set forth opposite their names in the table below. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent and that the Underwriters shall be obligated to purchase
all of the shares of Common Stock and Redeemable Warrants, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF
NAME OF COMMON STOCK REDEEMABLE WARRANTS
---- --------------- -------------------
<S> <C> <C>
Schneider Securities, Inc.
--------- ---------
TOTAL 1,000,000 1,000,000
========= =========
</TABLE>
Through the Representative, the several Underwriters have advised the
Company that they propose to offer the shares of Common Stock and the Redeemable
Warrants to the public at the initial public offering prices set forth on the
cover of this Prospectus. The Representative has advised the Company that it may
allow to certain dealers concessions of not in excess of $.25 per share of
Common Stock and $.005 per Redeemable Warrant, of which a sum not in excess of
$.13 per share of Common Stock and $.0025 per Redeemable Warrant may in turn be
reallaowed by such dealers to other dealers. After the issuance of the shares of
Common Stock and Redeemable Warrants, the public offering prices, the
concessions and the reallowances may be changed. The Representative has further
advised the Company that it does not expect sales to discretionary accounts to
exceed five percent of the total number of Securities offered hereby.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to three percent of the total proceeds of the Offering,
of which $50,000 has already been paid.
The Company has granted an option to the Underwriters, exercisable during
the 45-day period following the effective date of the Underwriting Agreement, to
purchase up to 150,000 shares of Common Stock and/or 150,000 Redeemable Warrants
at the offering price less underwriting discounts and the non-accountable
expense allowance. The Underwriters may exercise such option only to satisfy
over-allotments in the sale of the shares of Common Stock and Redeemable
Warrants.
Upon the exercise of the Redeemable Warrants more than one year after this
Offering and to the extent not inconsistent with the guidelines of the National
Association of Securities Dealers, Inc., and the rules and regulations of the
Commission, the Company has agreed to pay the Representative a commission equal
to five percent of the exercise price of the Redeemable Warrants. However, no
compensation will be paid to the Representative in connection with the exercise
of the Redeemable Warrants if (a) the market price of the underlying shares of
Common Stock is lower than the exercise price, (b) the Redeemable Warrants are
exercised in an unsolicited transaction, or (c) the Redeemable Warrants are held
in any discretionary accounts and (d) advance disclosure is made to a Redeemable
Warrant holder. In addition, unless granted an exemption by the Commission from
Rule 10b-6 under the Exchange Act, the Representative will be prohibited from
engaging in any market making activities or solicited brokerage activities with
regard to the Company's securities for a period of two to nine days before the
solicitation of the exercise of any Redeemable Warrant or before the exercise of
any Redeemable Warrant based upon a prior solicitation, until the later of the
termination of such solicitation activity or the termination by waiver or
otherwise of any right the Representative may have to receive a fee for the
exercise of the Redeemable Warrants following such solicitation.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants (the "Representative's
Warrants"), which confer the right to purchase up to 100,000 shares of Common
Stock and up to 100,000 Redeemable Warrants. The Representative's
48
Warrants are initially exercisable at the price (the "Exercise Price") of $8.00
per share of Common Stock and $.16 per Redeemable Warrant (160% of the
respective initial public offering price) for a period of four years commencing
one year from the effective date of this Prospectus. The shares of Common Stock
and Redeemable Warrants issuable upon exercise of the Representative's Warrants
are identical to those offered hereby. The Representative's Warrants contain
provisions providing for adjustment of the Exercise Price and the number and
type of securities issuable upon the exercise thereof upon the occurrence of
certain events. The Representative's Warrants grant to the holders thereof
certain demand and "piggyback" rights of registration of the securities issuable
upon the exercise thereof upon the occurrence of certain events beginning one
year after the date of this Prospectus.
The Company has agreed to enter into a three-year consulting agreement with
the Representative, pursuant to which the Representative will act as a financial
consultant to the Company, commencing upon the closing date of this Offering.
The Representative will make available qualified personnel for this purpose. The
consulting fee of $3,000 per month for a period of 36 months is payable in full
at the closing of this Offering.
Certain principal stockholders and the Company have agreed that, for a
period of 13 months from the date of this Prospectus, they will not sell any
securities (except for shares of Common Stock issued pursuant to exercise of
options which may be granted under the Incentive Plan and for shares issued
pursuant to the exercise of the Redeemable Warrants) without the
Representative's prior written consent, which shall not be unreasonably
withheld.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
The foregoing is a brief summary of certain provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the Underwriting Agreement is on file with the Commission
as an exhibit to the Registration Statement of which this Prospectus is a part.
Prior to the Offering, there has been no public market for the Securities.
The initial public offering prices of the shares of Common Stock and Redeemable
Warrants will be determined by negotiations between the Company and the
Representative and are not necessarily related to the Company's assets,
earnings, or book value or any other established criteria of value. Factors
considered in determining the Offering price of the shares of Common Stock and
Redeemable Warrants included estimates of business potential, financial
condition, future prospects, gross proceeds to be raised, percentage of stock
owned by officers and directors on the date hereof, the type of business in
which the Company engages, and an assessment of the Company's management. The
foregoing factors were evaluated in light of the existing state of the
securities market.
49
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 3,593,440 shares of
Common Stock (not including the Pending Shares) outstanding (3,743,440 shares,
if the Underwriters' over-allotment option is exercised in full). Of these
shares, the 1,000,000 shares offered hereby will be freely tradable without
further registration under the Securities Act.
Up to 100,000 additional shares of Common Stock may be purchased by the
Representative after the first anniversary of this Prospectus through the
exercise of the Representative's Warrants. Any and all shares of Common Stock
purchased upon exercise of the Representative's Warrants may be freely tradable,
provided that the Company satisfies certain securities registration and
qualification requirements in accordance with the terms of the Representative's
Warrants. See "UNDERWRITING."
All of the presently outstanding 2,593,440 shares of Common Stock (not
including the Pending Shares) are "restricted securities" within the meaning of
Rule 144 of the Securities Act and will be eligible for sale in the public
market in reliance upon, and in accordance with, the provisions of Rule 144.
In general, Under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act,
will be entitled to sell within any three-month period a number of shares
beneficially owned for at least two years that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock, or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice, and the availability of current
public information about the Company. However, a person who is not deemed to
have been an affiliate of the Company during the 90 days preceding a sale by
such person, and who has beneficially owned the shares of Common Stock for at
least three years, may sell such shares without regard to the volume, manner of
sale, or notice requirements of Rule 144.
Prior to this Offering, there has been no public market for the Company's
Securities. Following this Offering, the Company cannot predict the effect, if
any, that sales of Common Stock pursuant to Rule 144 or otherwise, or the
availability of such shares for sale, will have on the market price prevailing
from time to time. Nevertheless, sales by the current stockholders of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices for the Common Stock. In addition, the availability for
sale of a substantial amount of Common Stock acquired through the exercise of
the Redeemable Warrants or the Representative's Warrants could adversely affect
prevailing market prices for the Common Stock. The Company's officers, directors
and certain holders of 5% of the outstanding shares of Common Stock have agreed
not to sell the shares beneficially owned by such persons during a 12 or 13
month period following the date of this Prospectus (except for shares of Common
Stock that are subject to the Underwriters over-allotment option) without the
Representative's consent. In addition, the Company has agreed that it will not
issue any shares of Common Stock during a 13 month period following the date of
this Prospectus without the Representative's written consent.
50
LEGAL MATTERS
The validity of shares of Common Stock offered hereby will be passed upon
for the Company by LeClair Ryan, A Professional Corporation, Richmond, Virginia,
and certain matters for the Underwriters by William M.
Prifti, Esquire, Lynnfield, Massachusetts.
EXPERTS
The financial statements of the Company as of November 30, 1996 appearing in
this Prospectus and Registration Statement have been audited by McGladrey &
Pullen, LLP, independent audtiors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement and have been
included herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 (as amended from time to time and together with all exhibits and schedules
thereto, the "Registration Statement") under the Securities Act with respect to
the Common Stock and the Redeemable Warrants to be sold in the Offering. This
Prospectus constitutes a part of the Registration Statement and does not contain
all the information set forth therein, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the content of any contract or other document
are not necessarily complete, and in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
For further information regarding the Company, the Common Stock and the
Redeemable Warrants to be sold in the Offering, reference is hereby made to the
Registration Statement. A copy of the Registration Statement, including the
exhibits and schedules thereto, may be inspected by anyone without charge at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional Offices
of the Commission: New York Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048; and Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of the Registration Statement and
the exhibits and schedules thereto can be obtained from the Public Reference
Section of the Commission upon payment of prescribed fees. In addition the
Commission maintains a Web site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the Commission. Such information can be accessed free of charge (other than
costs associated with acquiring access to the Internet) at the Commission's Web
site (http://www.sec.gov).
Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act. Upon effectiveness of the Registration
Statement, the Company will become subject to the informational and periodic
reporting requirements of the Exchange Act, and in accordance therewith, will
file periodic reports, proxy statements and other information with the
Commission. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the public reference facilities and
other regional officers referred to above. The Company intends to register the
Securities offered by the Registration Statement under the Exchange Act
simultaneously with the effectiveness of the Registration Statement and to
furnish its stockholders with annual reports containing audited financial
statements and quarterly reports for the first three quarters of each fiscal
year containing unaudited interim financial information.
The shares of Common Stock and the Redeemable Warrants registered in
connection with the Offering will be listed on the Nasdaq SmallCap Market.
Reports and other information required to be filed with such market may be
inspected at the offices of the Nasdaq SmallCap Market at 1735 K Street, N.W.,
Washington, D.C. 20006.
51
PERARDUA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditor's Report F-2
Financial Statements:
Balance Sheet F-3
Statement of Activities F-4
Statement of Stockholders' Equity F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7
</TABLE>
F-1
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
PERARDUA CORPORATION
Petersburg, Virginia
We have audited the accompanying balance sheet of PerArdua Corporation (a
development stage company) as of November 30, 1996, and the related statements
of activities, stockholders equity, and cash flows for the period from July 5,
1996, date of inception, to November 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PerArdua Corporation as of
November 30, 1996, and the results of its activities and its cash flows for the
period from July 5, 1996, date of inception, to November 30, 1996 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered losses from its development stage
activities; the Company's operations will consist primarily of research and
development activities over the next several years; and the Company does not
expect operating profits or significant cash flows from operating activities
during that period. This raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
MCGLADREY & PULLEN, LLP
Richmond, Virginia
January 24, 1997
F-2
PERARDUA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
NOVEMBER 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 495,421
Deferred offering costs 29,718
------------
Total current assets 525,139
------------
Organizational costs, net of amortization 6,866
------------
$ 532,005
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 20,036
Accrued expenses 1,482
------------
Total current liabilities 21,518
------------
Commitments (Notes 5 and 6)
Stockholders' Equity:
Preferred Stock, par value $.01 per share, 1,000,000 shares authorized,
none issued -- Common Stock, par value $.01 per share, 25,000,000
authorized 2,593,440 shares
issued and outstanding (Notes 4 and 5) 25,934
Additional paid-in capital 2,609,739
Deficit accumulated during the development stage (2,090,690)
Subscription receivable (34,496)
------------
Total stockholders' equity 510,487
------------
$ 532,005
============
</TABLE>
See Notes to Financial Statements.
F-3
PERARDUA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF ACTIVITIES
PERIOD FROM JULY 5, 1996, DATE OF INCEPTION, TO NOVEMBER 30, 1996
<TABLE>
<CAPTION>
<S> <C>
Revenue:
Interest income $ 1,858
------------
Expense:
Research and development 2,058,980
General and administrative 33,568
------------
2,092,548
------------
Net loss $ (2,090,690)
============
Net loss per common share $ (.81)
============
Weighted average common shares outstanding 2,593,440
============
</TABLE>
See Notes to Financial Statements.
F-4
PERARDUA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM JULY 5, 1996, DATE OF INCEPTION, TO NOVEMBER 30, 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE STOCK
------------ PAID-IN DEVELOPMENT SUBSCRIPTION
SHARES AMOUNT CAPITAL STAGE RECEIVABLE TOTAL
------ ------ ------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Stock issued at inception
retroactively restated to
reflect 41 2/3 to 1 stock split
declared on July 5, 1996 1,000,000 $ 10,000 $ 90,200 $ $ $ 100,200
Issuance (valued at $1.60 per
share) for cash and
acquisition of technology 950,000 9,500 1,510,500 1,520,000
Issuance (at $1.60 per share)
for cash, net of issuance costs
of $48,527 643,440 6,434 1,009,039 (34,496) 980,977
Net loss (2,090,690) (2,090,690)
--------- ------- ----------- ----------- --------- -----------
Balance, November 30, 1996 2,593,440 $25,934 $ 2,609,739 $(2,090,690) $ (34,496) $ 510,487
========= ======= =========== =========== ========= ===========
</TABLE>
See Notes to Financial Statements.
F-5
PERARDUA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD FROM JULY 5, 1996, DATE OF INCEPTION, TO NOVEMBER 30, 1996
<TABLE>
<CAPTION>
<S> <C>
Development stage activities:
Net loss $ (2,090,690)
Adjustments to reconcile net loss to net cash used in development
stage activities:
Amortization 237
Charges to expense for value of stock issued for technology 1,519,050
Change in operating assets and liabilities:
Accounts payable and accrued liabilities 20,036
------------
Net cash used in development stage activities (551,367)
------------
Cash used in investing activities:
Organization costs (7,103)
------------
Financing activities:
Proceeds from issuance of common stock 1,130,654
Offering costs (78,245)
------------
Net cash provided by financing activities 1,052,409
------------
Net increase in cash 495,421
Cash, beginning of period --
------------
Cash, end of period $ 495,421
============
</TABLE>
See Notes to Financial Statements.
F-6
PERARDUA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: PerArdua Corporation (the Company) was incorporated in
1988. The Company was a "shell" corporation, i.e. without assets or liabilities,
until July 1996, when the Company acquired from PerArdua Investors, L.P. (the
Limited Partnership) a license to certain patent rights to a drug called
"Thiovir". The Company's operations will focus on the development and United
States Food and Drug Administration (FDA) approval of Thiovir for treatment of
HIV/AIDS patients and patients showing active infection of the opportunistic
virus cytomegalovirus (CMV) and, ultimately, commercial sale of the product.
The Company is in the development stage. Its major activities through
November 30, 1996 have been limited to acquiring a licensing agreement and
conducting research and development related to its proposed product and to
obtaining equity capital. These activities have not generated any recurring
revenues; accordingly, the accompanying financial statements include the
disclosures required by Statement of Financial Accounting Standard No. 7,
"Accounting and Reporting by Development Stage Enterprises".
Accounting Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash and cash equivalents includes all cash
balances and highly liquid investments with a purchased maturity of three months
or less. The Company places its temporary cash investments with high credit
quality financial institutions. At November 30, 1996, the Company had cash
balances in excess of insured limits.
Research and Development: Research and development costs are expensed as
incurred.
Income Taxes: The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standard No. 109, "Accounting
for Income Taxes," which utilizes an asset and liability approach to financial
accounting and reporting for income taxes. Deferred tax assets are recognized
for deductible temporary differences and operating loss and tax credit carry
forwards; deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between reported amounts
of assets and liabilities and their tax bases. Deferred income tax assets and
liabilities that will result in taxable or deductible amounts in the future are
based on enacted laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. The income tax provision or credit is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
Net Loss Per Common Share: Net loss per common share is computed based upon
the weighted average number of common shares outstanding during the year. As
further explained in Note 3, the Company is in the process of preparing its
initial public offering (IPO) of common stock and warrants. In accordance with
Securities and Exchange Commission Staff Accounting Bulletin Topic 4D, the
weighted average number of common shares outstanding includes for the entire
year, all common shares issued below the anticipated IPO price per share.
Deferred Offering Costs: Costs incurred in connection with the proposed IPO
have been deferred as of November 30, 1996. If the IPO is completed, the
deferred offering costs will be deducted from the proceeds and charged against
additional paid-in capital. If the IPO is not completed, such costs will be
charged to operations.
F-7
PERARDUA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2. GOING CONCERN CONSIDERATIONS AND BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate the continuation of
the Company as a going concern. However, during the period from July 5, 1996,
date of inception, to November 30, 1996, the Company incurred a loss of
$2,090,690. Such loss was funded through proceeds received from issuance of
common stock. Management believes that the Company's operations will consist
primarily of research and development activities over the next several years,
and therefore, it does not expect the Company to generate operating profits or
significant cash flows from operating activities during that period. To obtain
the additional funds it needs to continue its research activities at planned
levels during the fiscal year ending November 30, 1997, management believes that
the Company will need substantial funds from debt obligations or equity
financing, such as its proposed IPO. Management cannot provide any assurances
that the Company will be able to obtain such financing. These conditions raise
substantial doubts about the Company's ability to continue as a going concern.
The accompanying financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classifications of liabilities that might be necessary should the Company be
unable to continue as a going concern.
NOTE 3. PROPOSED IPO
On October 24, 1996, the Company and an investment banking firm signed a
letter of intent whereby the investment banking firm agreed to underwrite the
Company's IPO, which is expected to consist of 1,000,000 shares of common stock
at $5.00 per share. Additionally, the letter of intent calls for issuance of
1,000,000 redeemable warrants at a price of $.10 each with an exercise price of
$6.50 per share of common stock for a period of 60 months commencing thirteen
(13) months from the effective date. The warrants will be redeemable by the
Company commencing thirteen (13) months from the effective date at $.20 per
warrant, provided that the average closing bid price of the common stock equals
or exceeds $9.00 per share for 20 consecutive trading days.
The letter of intent includes an over-allotment option which would allow for
the Underwriter to purchase securities, up to an additional 15% of the offering,
for a period of forty-five (45) days following the effective date solely for the
purpose of covering any short position in the offering. The Company has also
agreed to sell the underwriter, for nominal consideration, five (5) year
warrants to purchase ten percent (10%) of the number of securities being
underwritten. These warrants will be exercisable any time during a period of
four (4) years commencing one year from the effective date of the final
prospectus at a price equaling 120% of the IPO price.
NOTE 4. STOCKHOLDERS' EQUITY
On July 5, 1996, the Board of Directors and stockholders approved amendments
to the Company's Articles of Incorporation that (i) changed the name of the
Company from Home Test Inc. to PerArdua Corporation; (ii) converted the no par
common stock to common stock with a par value of $0.001 per share; (iii)
increased the total number of authorized common shares from 30,000 to
10,000,000; and (iv) ordered that each share of Home Test Inc. no par common
stock be exchanged for 41 2/3 shares of PerArdua Corporation common stock, par
value of $0.001 per share.
Effective January 1997, the Company was merged with and into its
wholly-owned subsidiary PerArdua Corporation, a Delaware corporation. The sole
purpose of the merger was to change the Company's jurisdiction of incorporation
from Missouri to Delaware. As a result of the merger, the surviving Delaware
corporation assumed all of the assets and liabilities of the Company, and
holders of shares of common stock in the Missouri corporation became holders of
the same number of shares of common stock in the Delaware corporation; the par
value of common stock was changed from $.001 per share to $.01 per share; common
stock authorization was increased to 25,000,000 shares and 1,000,000 shares of
$.01 par value Preferred Stock were authorized for future issuance.
F-8
PERARDUA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 4. STOCKHOLDERS' EQUITY -- (CONTINUED)
The changes in the par value of the common stock and the stock split have
been retroactively reflected in the accompanying financial statements and these
notes for the period from inception.
On August 20, 1996, the Company issued 500,000 warrants for the purchase of
the Company's common stock. The warrants grant the holders the right to purchase
additional shares of common stock at an exercise price of $10.00 per share. The
warrants can be exercised in whole or in part, from time to time, following FDA
approval, with a final expiration date of June 30, 2006.
On October 4, 1996, pursuant to a Private Placement Memorandum, dated August
20, 1996, the Company completed an offering of 665,000 shares of its common
stock at $1.60 per share. Net proceeds to the Company were $1,015,473, after
related expenses of $48,527.
During the private placement offering the Company accepted a subscription
from an investor for 21,560 shares of common stock. The total consideration for
this subscription was $34,496 and has been recognized as an increase to
additional paid in Capital.
On August 20, 1996 the Board of Directors approved the sale of 950,000
shares of common stock and warrants to purchase an additional 200,000 shares of
common stock. As more fully discussed in Note 5 below, the shares were valued at
$1.60 per share, although the Company only received cash consideration of $.001
per share ($950). The warrants grant the holders the right to purchase
additional shares of common stock at an exercise price of $10.00 per share. The
warrants can be exercised in whole or in part, from time to time, following FDA
approval, with a final expiration date of June 30, 2006.
The Board of Directors and the stockholders of the Company approved a stock
incentive plan (the Plan) during 1996. The plan provides for grants of incentive
stock options or stock appreciation rights only to the Company's employees and
nonqualified stock options and stock appreciation rights to the Company's
employees, directors, members of the advisory board, independent contractors or
consultants of the Company. The Company has reserved 500,000 shares of common
stock for issuance under the Plan. The purchase price for each share to be
awarded or sold and the exercise price and the term for each option or stock
appreciation right to be granted under the Plan will be determined by the Board
of Directors or its Compensation Committee.
On August 20, 1996 the Board of Directors granted an officer of the Company
an option under the plan to purchase 10,000 shares of common stock at an
exercise price of $7.50 per share. The option will vest one year after the date
employment commences and will remain in effect for a period of five years unless
employment is terminated earlier.
NOTE 5. OPTION AND LICENSE AGREEMENT
Pursuant to an agreement, dated July 8, 1996 (the Acquisition Agreement),
the Company acquired certain rights from the Limited Partnership. The rights
acquired consist of an exclusive license to certain patent and other
intellectual property rights related to the drug, Thiovir. The license rights
are pursuant to a license agreement between the Limited Partnership and the
University of Southern California (USC) (the USC License Agreement), the rights
and obligations of which were transferred by the Limited Partnership to the
Company through an Assignment, Assumption and Consent Agreement among the
Company, the Limited Partnership and USC. The USC License Agreement contains an
exclusive worldwide license to practice the inventions set forth in any relevant
patents and patent applications of USC related to Thiovir. In return, the
Limited Partnership funded development of Thiovir through research grants to
USC. Funding of the research is now the responsibility of the
F-9
PERARDUA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5. OPTION AND LICENSE AGREEMENT -- (CONTINUED)
Company. Subsequent to November 30, 1996, the Company signed an agreement with
USC providing for $ 176,000 of research funding for the project. The research
period will be effective through September 30, 1997, at which time USC can
request an eight month extension period at no additional cost to the Company.
Consideration paid by the Company to the Limited Partnership under the
Acquisition Agreement consisted of $540,000 cash, which included $100,000 of
cash received from the initial stockholders and $440,000 paid out of the net
proceeds of the private offering (see Note 4). Additionally, the limited
partners, together with USC and three individuals who have been actively
involved in the development of Thiovir, were extended the right, which was
exercised, to acquire 950,000 shares of the Company's common stock for $950
($.001 per share) along with warrants to purchase 200,000 additional shares at
$10.00 per share through June 30, 2006. These warrants will only become
exercisable upon FDA approval of Thiovir. The 950,000 shares issued for $950
were valued at $1.60 per share as determined by the per share amount received in
the private offering completed several months after the completion of the
transactions contemplated by the Acquisition Agreement.
Charges resulting from cash paid ($540,000) and shares issued ($1,519,000)
under the Acquisition Agreement were recorded as research and development
expense since Thiovir is still in an early stage of development. The drug has
undergone certain laboratory and animal studies, but must still undergo
successful further studies, as well as in human clinical trials, all pursuant to
protocols yet to be approved by the FDA, in order to be commercially marketable.
The Acquisition Agreement also contains a provision whereby the purchase
price shall be adjusted upward in the event that the Company should sell all or
any portion of its rights in Thiovir in consideration of $5,000,000 or more
prior to the filing of a registration statement for its IPO. In that event, the
purchase price payable to the Limited Partnership by the Company shall be equal
to 49% of the sales proceeds.
Pursuant to the USC License Agreement (and subsequent Assignment, Assumption
and Consent Agreement), the Company will be obligated to pay royalties to USC in
conjunction with future sales and to reimburse USC for legal expenses that may
be incurred in connection with patent prosecution and defense. Royalties are
payable equal to 1% of sales of the products and 50% of any royalties earned
from sublicensees. Minimum annual royalties are payable starting at $12,500 in
1998, increasing to $125,000 in 2001 and each year thereafter.
NOTE 6. EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into an employment contract with one of its
stockholders. The agreement provides for a monthly salary of $5,000 and office
allowance of $1,000. The stockholder is required to devote 75 percent of her
business time to the affairs of the Company. This agreement will continue until
the first to occur of the following: (i) September 1997, or (ii) the closing
date of an underwritten initial public offering.
On August 20, 1996 the Company's Board of Directors approved and entered
into a Consulting Agreement with one of its stockholders for research and
development activities. The agreement's term is to be for the period from
October 1, 1996 until September 30, 1999 and requires retainers of $5,000 for
the period October 1, 1996 through March 31, 1997, $5,000 for the period April
1, 1997 through September 30, 1997, $12,500 for the period October 1, 1997
through September 30, 1998, and $15,000 for the period October 1, 1998 through
September 30, 1999 and a per diem of $1,000 for each full day and $600 for each
half day of consulting services provided to the Company.
F-10
PERARDUA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7. INCOME TAXES
At November 30, 1996, the Company had net operating loss (NOL) carryforwards
available to reduce future taxable income, if any, of approximately $37,710 for
federal and state income tax reporting purposes that expire in 2011. The
Company's ability to utilize the NOL will also be subject to annual limits
established by Internal Revenue Code Section 382.
The net operating loss carryforward and a temporary difference of $540,000
for rights acquired under the Acquisition Agreement (see Note 5) could have
resulted in the recognition of deferred tax assets of approximately $217,000 at
November 30, 1996. However, due to the uncertainties inherent in the Company's
operations, the deferred tax assets and the related tax benefits have been
offset by a valuation allowance in the same amount and accordingly, have not
been reflected in the accompanying financial statements.
Research and development expense of $1,519,000, represented by the value of
common stock issued under the Acquisition Agreement, is not deductible for
income tax purposes.
F-11
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MAKE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
-----------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary 3
Risk Factors 6
Special Note Regarding Forward
Looking Statements 16
Use of Proceeds 17
Dividend Policy 17
Dilution 18
Capitalization 19
Selected Financial Data 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 21
Business 23
Management 33
Principal Stockholders 39
Certain Relationships and Related
Transactions 41
Description of Securities 43
Underwriting 48
Shares Eligible for Future Sale 50
Legal Matters 51
Experts 51
Additional Information 51
UNTIL ______ , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
PERARDUA CORPORATION
1,000,000 SHARES OF COMMON STOCK
1,000,000 REDEEMABLE WARRANTS
----------
PROSPECTUS
----------
SCHNEIDER SECURITIES, INC.
, 1997
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law enables a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by the corporation's stockholders to eliminate or limit
personal liability of members of its Board for violations of a director's
fiduciary duty of care. However, the elimination of limitation shall not apply
where there has been a breach of the duty of loyalty, failure to act in good
faith, engaging in intentional misconduct or knowingly violating a law, paying a
dividend or obtaining an improper personal benefit.
In addition, Section 145 of the Delaware General Corporation Law permits a
corporation organized under Delaware law to indemnify directors and officers
with respect to any matter in which the director or officer acted in good faith
and in a manner he or she reasonably believed to be not opposed to the best
interests of the Company, and, with respect to any criminal action, he or she
had reasonable cause to believe his or her conduct was not lawful.
Article VII, Section 2 of the Company's Certificate of Incorporation
provides as follows:
Subject to the operation of Section 4 of this Article VII, each [officer
and director of the Company] shall be indemnified and held harmless by the
[Company] to the fullest extent authorized by the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended (but
in the case of such amendment, only to the extent that such amendment
permits the [Company] to provide broader indemnification rights than such
law permitted the [Company] to provide prior to such amendment) against any
and all [e]xpenses, judgments, penalties, fines and amounts reasonably paid
in settlement that are incurred by such [officer or director] or on such
[officer's or director's] behalf in connection with any threatened, pending
or completed [p]roceeding or any claim, issue or matter therein, which such
[officer or director] is, or is threatened to be made, a party to or
participant in by reason of such [officer's or director's] [c]orporate
[s]tatus, if such [officer or director] acted in good faith and in a manner
such [officer or director] reasonably believed to be in or not opposed to
the best interests of the [Company] and, with respect to any criminal
proceeding, has no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 2 shall
continue as to an [officer or director] after he or she has ceased to be an
[officer or director] and shall inure to the benefit of his or her heirs,
executors, administrators and personal representatives. Notwithstanding the
foregoing, the [Company] shall indemnify any [officer or director] seeking
indemnification in connection with a [p]roceeding initiated by such [officer
or director] only if such [p]roceeding was authorized by the Board of
Directors of the [Company].
In addition, Article VII, Section 4 of the Company's Certificate of
Incorporation provides as follows:
Unless ordered by a court, no indemnification shall be provided pursuant
to this Article VII to an [o]fficer . . . unless a determination shall have
been made that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
[Company] and, with respect to any criminal [p]roceeding, such person had no
reasonable cause to believe his or her conduct was unlawful. Such
determination shall be made by (a) a majority vote of the [d]isinterested
[d]irectors, even though less than a quorum of the Board . . . (b) if there
are no such [d]isinterested [d]irectors, or if a majority of [d]isinterested
[d]irectors so direct by independent legal counsel in a written opinion, or
(c) by the stockholders of the [Company].
II-1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the shares of Common
Stock being registered, other than the underwriting discount and commissions.
All of the following expenses will be paid by the Company.
<TABLE>
<CAPTION>
<S> <C>
Commission Filing Fee $ 4,600.00
Nasdaq SmallCap Fee 5,000.00
NASD Filing Fee 2,000.00
Blue Sky Fees and Expenses 15,000.00
Non-Accountable Expense Allowance to the Representative 153,000.00
Printing and Engraving Expenses 50,000.00
Accounting Fees and Expenses 25,000.00
Legal Fees and Expenses 75,000.00
Transfer Agent and Registrar Fees 5,000.00
Consulting Fees 108,000.00
Miscellaneous Fees and Expenses 7,400.00
-----------
TOTAL (Estimated) $450,000.00
===========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since February 5, 1994, the Company has sold and issued the following
unregistered securities:
On August 12, 1996, the Company issued warrants to purchase an aggregate of
150,000 shares of Common Stock at $10.00 per share to Samuel P. Sears, Jr. for
no consideration.
On August 12, 1996, the Company issued warrants to purchase an aggregate of
150,000 shares of Common Stock at $10.00 per share to Francis E. O'Donnell, Jr.
for no consideration.
On August 12, 1996, the Company issued warrants to purchase an aggregate of
200,000 shares of Common Stock at $10.00 per share to Thomas L. DePetrillo for
no consideration.
On August 16, 1996, the Company, in connection with the acquisition of a
license of certain rights to Thiovir, issued an aggregate of 200,000 warrants
and 200,000 shares of Common Stock to 16 investors for a total aggregate cash
consideration of $200.00. Fifteen of the investors were limited partners in the
limited partnership which transferred the license; the other investor was the
University of Southern California, the licensor under the license.
On August 16, 1996, the Company issued 320,000 shares of Common Stock to
Charles E. McKenna, Ph.D. for $320.00.
On August 16, 1996, the Company issued 110,000 shares of Common Stock to Mary
Anthony Gray for $110.00.
On August 16, 1996, the Company issued 320,000 shares of Common Stock to
Thomas D. Wolfe for $320.00.
On September 8, 1996, the Company issued options to purchase 10,000 shares
of Common Stock at an exercise price of $7.50 per share to Mary Anthony Gray
pursuant to the Company's Stock Incentive Plan.
On October 4, 1996, the Company issued an aggregate of 643,440 shares of
Common Stock to investors for a total, aggregate purchase price of $1,029,504.
The sales and issuance of the securities in the above transactions were
deemed to be exempt under the Securities Act by virtue of Sections 3(b) and/or
4(2) thereof and/or Regulation D promulgated thereunder as transactions not
involving any public offering. The purchasers in each case represented their
intention to acquire the securities for investment only and not with a view to
the distribution thereof. Appropriate legends were affixed to the certificates
issued in such transactions.
II-2
The Company intends to issue the Pending Shares prior to the completion of
the Offering. In addition, shortly after the completion of the Offering, the
Company also intends to issue options to purchase an aggregate of 30,000 shares
of Common Stock to three of the Company's outside directors pursuant to the
Incentive Plan at an exercise price to be determined, but not less than $5.00
per share.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
1.1 -- Form of Underwriting Agreement*
1.2 -- Form of Selected Dealers Agreement*
1.3 -- Form of Agreement Among Underwriters*
2.1 -- Option and Asset Purchase Agreement, dated July 8, 1996, by and between PerArdua
Investors, L.P. and the Company**
3.1 -- Certificate of Incorporation of Registrant*
3.2 -- Bylaws of Registrant*
4.1 -- Form of Common Stock Certificate**
4.2 -- Form of Stock Purchase Warrant*
4.3 -- Form of Private Placement Subscription Agreement*
4.4 -- Form of Acquisition Transaction Subscription Agreement**
4.5 -- Form of Representative's Warrants*
4.6 -- Form of Warrant Agreement (including form of Redeemable Warrant)**
5.1 -- Opinion of LeClair Ryan, A Professional Corporation**
10.1 -- Option & License Agreement, dated March 28, 1994, by and between PerArdua Investors,
L.P. and the University of Southern California**
10.2 -- Stockholders' Agreement, dated July 8, 1996, by and between the Company, the
stockholders of the Company, and the limited partners of PerArdua Investors, L.P.**
10.3 -- Research Agreement, dated January 7, 1997, by and between the University of Southern
California and the Company*
10.4 -- Consulting Agreement, dated September 30, 1996, by and between the Company and
Charles E. McKenna, Ph.D.*
10.5 -- Assignment, Assumption and Consent, dated as of July 31, 1996, by and between
PerArdua Investors, L.P., the Company and the University of Southern California*
10.6 -- Form of Consulting Agreement by and between the Company and Schneider Securities,
Inc.*
10.7 -- Employment Agreement, dated as of September 3, 1996 by and between the Company
and Mary Anthony Gray*
23.1 -- Consent of McGladrey & Pullen, LLP*
23.2 -- Consent of LeClair Ryan, A Professional Corporation (included in Exhibit 5.1 hereto)**
24.1 -- Power of Attorney (see Page II-5)*
27.1 -- Financial Data Schedule*
- --------------
* Filed herewith.
** To be filed by amendment.
</TABLE>
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
II-3
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
Provided, however, that paragraphs 1(i) and 1(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment of
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or(4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it is declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and this offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned small business issuer undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
II-4
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE IN THE CITY OF RICHMOND,
COMMONWEALTH OF VIRGINIA, ON FEBRUARY 5, 1997.
PERARDUA CORPORATION
By: /s/ FRANCIS E. O'DONNELL, JR., M.D.
-----------------------------------
FRANCIS E. O'DONNELL, JR., M.D.,
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Samuel P. Sears, Jr. and Francis E. O'Donnell,
Jr., M.D. and each of them, with full power to act without the other, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities (until revoked by writing) to sign any and all amendments to
this Registration Statement (including post-effective amendments and amendments
thereto) and any registration statement relating to the same offering as this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in- fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing, ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
PURSUANT TO THE REQUIREMENT OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED:
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ FRANCIS E. O'DONNELL, JR., M.D., CHAIRMAN OF THE BOARD, FEBRUARY 5, 1997
------------------------------------ PRESIDENT, CHIEF EXECUTIVE
FRANCIS E. O'DONNELL, JR., M.D., OFFICER (PRINCIPAL EXECUTIVE
OFFICER) AND DIRECTOR
/s/ SAMUEL P. SEARS, JR. TREASURER (PRINCIPAL FINANCIAL FEBRUARY 5, 1997
------------------------------------ OFFICER), SECRETARY AND
SAMUEL P. SEARS, JR. DIRECTOR
/s/ EMANUELA I. CHARLTON, PH.D. DIRECTOR FEBRUARY 5, 1997
------------------------------------
EMANUELA I. CHARLTON, PH.D.
/s/ THOMAS QUINN DIRECTOR FEBRUARY 5, 1997
------------------------------------
THOMAS QUINN
/s/ W. HOWARD LEWIN, M.D. DIRECTOR FEBRUARY 5, 1997
------------------------------------
W. HOWARD LEWIN, M.D.
</TABLE>
II-5
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
1.1 -- Form of Underwriting Agreement*
1.2 -- Form of Selected Dealers Agreement*
1.3 -- Form of Agreement Among Underwriters*
2.1 -- Option and Asset Purchase Agreement, dated July 8, 1996, by and between PerArdua
Investors, L.P. and the Company**
3.1 -- Certificate of Incorporation of Registrant*
3.2 -- Bylaws of Registrant*
4.1 -- Form of Common Stock Certificate**
4.2 -- Form of Stock Purchase Warrant*
4.3 -- Form of Private Placement Subscription Agreement*
4.4 -- Form of Acquisition Transaction Subscription Agreement**
4.5 -- Form of Representative's Warrants*
4.6 -- Form of Warrant Agreement (including form of Redeemable Warrant)**
5.1 -- Opinion of LeClair Ryan, A Professional Corporation**
10.1 -- Option & License Agreement, dated March 28, 1994, by and between PerArdua Investors,
L.P. and the University of Southern California**
10.2 -- Stockholders' Agreement, dated July 8, 1996, by and between the Company, the
stockholders of the Company, and the limited partners of PerArdua Investors, L.P.**
10.3 -- Research Agreement, dated January 7, 1997, by and between the University of Southern
California and the Company*
10.4 -- Consulting Agreement, dated September 30, 1996, by and between the Company and
Charles E. McKenna, Ph.D.*
10.5 -- Assignment, Assumption and Consent, dated as of July 31, 1996, by and between
PerArdua Investors, L.P., the Company and the University of Southern California*
10.6 -- Form of Consulting Agreement by and between the Company and Schneider Securities,
Inc.*
10.7 -- Employment Agreement, dated as of September 3, 1996 by and between the Company
and Mary Anthony Gray*
23.1 -- Consent of McGladrey & Pullen, LLP*
23.2 -- Consent of LeClair Ryan, A Professional Corporation (included in Exhibit 5.1 hereto)**
24.1 -- Power of Attorney (see Page II-5)*
27.1 -- Financial Data Schedule*
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
PERARDUA CORPORATION
1,000,000 SHARES
OF COMMON STOCK
AND
1,000,000 REDEEMABLE WARRANTS
UNDERWRITING AGREEMENT
, 1997
Schneider Securities, Inc.
1120 Lincoln Street
Denver, Colorado 80203
Dear Sirs:
PerArdua Corporation . a Missouri corporation (the "Company"), proposes to
issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters"), one million shares of common stock of the Company and one
million redeemable warrant (the "Securities"). The Company hereby confirms the
agreement made by it with respect to the purchase of the Securities by the
Underwriter, which Securities are more fully described in the Registration
Statement referred to below.Schneider Securities,Inc.. . is referred to herein
as the "Underwriter" or the "Representative."
You have advised the Company that the Underwriters desire to act on a firm
commitment basis to publicly offer and sell the Securities for the Company and
that you are authorized to execute this Agreement. The Company confirms the
agreement made by it with respect to the relationship with the Underwriters as
follows:
1. Filing of Registration Statement with S.E.C. and Definitions. A
Registration Statement and Prospectus on Form SB-2 (File No. ) with respect to
the Securities has been carefully and accurately prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the published rules and regulations (the "Rules and Regulations")
thereunder or under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has been filed with the Securities and Exchange Commission
(the "Commission") and such other states that the Underwriter deems necessary in
its discretion to so file to permit a public offering and trading thereunder.
Such registration statement, including the prospectus, Part II, and all
financial schedules and exhibits thereto, as amended at the time when it shall
become effective, is herein referred to as the "Registration Statement," and the
prospectus included as part of the Registration Statement on file with the
Commission that discloses all the information that was omitted from the
prospectus on the effective date pursuant to Rule 430 A of the Rules and
Regulations with any changes contained in any prospectus filed with the
Commission by the Company with the Underwriters consent after the effective date
of the Registration Statement, is herein referred to as the "Final Prospectus."
The prospectus included as part of the Registration Statement of the Company and
in any amendments thereto prior to the effective date of the Registration
Statement is referred to herein as a "Preliminary Prospectus."
2. Discount, Delivery, and Sale of the Securities
(a) Subject to the terms and conditions of this Agreement, and on the basis
of the representations, warranties, and agreements herein contained, the Company
agrees to sell to, and the Underwriters agree to buy from the Company at a
purchase price of $ 4.50 per share and $ .09 per Redeemable Warrant before any
underwriter expense allowances, an aggregate of 1,000,000 shares of Common
Stock, and 1,000,000 Redeemable Warrants on a firm commitment basis the "Initial
Securities"..
It is understood that the Underwriters propose to offer the Securities to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
(b) Delivery of the Securities against payment of the purchase price therefor
by certified or official bank check or checks or wire transfer in next-day
funds, payable to the order of the Company shall take place at the offices of
the clearing broker for the Underwriter at New York City, within three (3)
business days after the Securities are first traded (or such other place as may
be designated by agreement between you and the Company) at 11:00 A.M., New York
time or such time and date as you and the Company may agree upon in writing,
such time and date of payment and delivery for the Securities being herein
called the "Initial Closing Date."
The Company will make the certificates for the shares of Common Stock and
Redeemable Warrants to be purchased by the Underwriters hereunder available to
the Underwriter for inspection and packaging at least two (2) full business days
prior to the Initial Closing Date. The certificates shall be in such names and
denominations as the Underwriter may request to the Company in writing at least
two (2) full business days prior to any Closing Date.
(c) In addition, subject to the terms and conditions of this Agreement and on
the basis of the representations, warranties and agreements herein contained,
the Company grants an option to the Underwriters to purchase up to an additional
150,000 shares of Common Stock and/or up to 150,000 additional Warrants as the
case may be ("Option Securities") at the same terms as the Underwriters shall
pay for the Initial Securities being sold by the Company pursuant to the
provisions of Section 2(a) hereof. This option may be exercised from time to
time, for the purpose of covering overallotments, within forty-five (45) days
after (i) the effective date of the Registration Statement if the Company has
elected not to rely on Rule 430A under the Rules and Regulations or (ii) the
date of this Agreement if the Company has elected to rely upon Rule 430A under
the Rules and Regulations, upon written notice by the Underwriter setting forth
the number of Option Securities as to which the Underwriter is exercising the
option and the time and date at which such certificates are to be delivered.
Such time and date shall be determined by the Underwriter but shall not be
earlier than four (4) nor later than ten (10) full business days after the date
of the exercise of said option. Nothing herein shall obligate the Underwriter to
make any overallotment.
(d) Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered at the closing by the
Company to the Underwriters against payment of the purchase price by the
Underwriters by certified or bank cashier's checks or wire transfer in next day
funds payable to the order of the Company.
(e) The information set forth under "Underwriting" in any preliminary
prospectus and Prospectus relating to the Securities and the information set
forth in the last paragraph on the front cover page, under the last paragraph on
page 2 concerning stabilization and over-allotment by the Underwriters, and
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriter to the Company for inclusion therein,
and you represent and warrant to the Company that the statements made therein
are correct.
(f) On the Initial Closing Date, the Company shall issue and sell to the
Representative, warrants (the "Representative's Warrants") at a purchase price
of $.001 per Representative's Warrant, which shall entitle the holders thereof
to purchase an aggregate of 100,000 shares of Common Stock and 100,000
Redeemable Warrants. The shares of common stock and redeemable warrants issuable
upon the exercise of the Representative's Warrants are hereafter referred to as
the "Representative's Securities" or "Representative's Warrants." The shares of
common stock issuable upon exercise of the redeemable warrants are hereinafter
referred to collectively as the "Warrant Shares". The Representative's Warrants
shall be exercisable for a period of four (4) years commencing one (1) year from
the effective date of the Registration Statement at a price equaling one hundred
thirty percent (130%) of the initial public offering price of the Securities.
The form of Representative's Warrant Certificate shall be substantially in the
form filed as an Exhibit to the Registration Statement. Payment for the
Representative's Warrants shall be made on the Initial Closing Date.
3. Representations and Warranties of the Company.
2
(a) The Company represents and warrants to you as follows:
(i) The Company has prepared and filed with the Commission a registration
statement, and an amendment or amendments thereto, on Form SB-2 (No. ),
including any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Securities, the Representative's Warrant and the Warrant
Shares (sometimes referred to herein collectively as the "Registered
Securities"), under the Act, which registration statement and amendment or
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the Rules and Regulations. The Company will promptly file a
further amendment to said registration statement in the form heretofore
delivered to the Underwriter and will not file any other amendment thereto to
which the Underwriter shall have objected verbally or in writing after having
been furnished with a copy thereof. Except as the context may otherwise require,
such registration statement, as amended, on file with the Commission at the time
the registration statement becomes effective (including the prospectus,
financial statements, any schedules, exhibits and all other documents filed as a
part thereof or that may be incorporated therein (including, but not limited to
those documents or information incorporated by reference therein) and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the Rules and Regulations), is hereinafter called the
"Registration Statement," and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations, is
hereinafter called the "Prospectus."
(ii) Neither the Commission nor any state regulatory authority has issued any
order preventing or suspending the use of any Prospectus or the Registration
Statement and no proceeding for an order suspending the effectiveness of the
Registration Statement or any of the Company's securities has been instituted or
is pending or threatened. Each such Prospectus and/or any supplement thereto has
conformed in all material respects with the requirements of the Act and the
Rules and Regulations and on its date did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, in light of the circumstances under which they were
made; and when the Prospectus becomes legally effective and for twenty-five (25)
days subsequent thereto (i) the Prospectus and/or any supplement thereto will
contain all statements which are required to be stated therein by the Act and
Rules and Regulations, and (ii) the Prospectus and/or any supplement thereto
will not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, in light of the circumstances under which they were
made; provided, however, that no representations, warranties or agreements are
made hereunder as to information contained in or omitted from the Prospectus in
reliance upon, and in conformity with, the written information furnished to the
Company by you as set forth in Section 2(e) above.
(iii) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of its incorporation,
with full power and authority (corporate and other) to own its properties and
conduct its businesses as described in the Prospectus and is duly qualified to
do business as a foreign corporation in good standing in all other jurisdictions
in which the nature of its business or the character or location of its
properties requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, properties or
operations of the Company and the subsidiaries as a whole.
(iv) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, the Option Securities and the
Representative's Securities and to enter into this Agreement, the
Representative's Warrant dated as of the initial closing date to be exercised
and delivered by the Company to the Representative (the "Representative's
Warrant Agreement"), and the Financial Advisory and Investment Banking Agreement
dated as of the Initial Closing Date between the Company and the Representative
(the "Consulting Agreement"), and to consummate the transactions provided for in
such agreements, and each of such agreements has been duly and properly
authorized, and on the Initial Closing Date will be duly and properly executed
and delivered by the Company. This Agreement constitutes and on the Initial
Closing Date each of the Representative's Warrant Agreement and the Consulting
Agreement will then constitute valid and binding agreements, enforceable in
accordance with their respective terms (except as the enforceability thereof may
be limited by bankruptcy or other similar laws affecting the rights of creditors
generally or by general equitable principles and except as the enforcement of
indemnification provisions may be limited by federal or state securities laws).
3
(v) Except as disclosed in the Prospectus, the Company is not in violation of
its respective certificate or articles of incorporation or bylaws or in default
in the performance or observance of any material obligation, agreement, covenant
or condition contained in any material bond, debenture, note or other evidence
of indebtedness or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture, partnership or other agreement or instrument to
which the Company is a party or by which it may be bound or is not in material
violation of any law, order, rule, regulation, writ, injunction or decree of any
governmental instrumentality or court, domestic or foreign; and the execution
and delivery of this Agreement, the Representative's Warrant Agreement and the
Consulting Agreement, and the consummation of the transactions contemplated
therein and in the Prospectus and compliance with the terms of each such
agreement will not conflict with, or result in a material breach of any of the
terms, conditions or provisions of, or constitute a material default under, or
result in the imposition of any material lien, charge or encumbrance upon any of
the property or assets of the Company pursuant to, any material bond, debenture,
note or other evidence of indebtedness or any material contract, indenture,
mortgage, loan agreement, lease, joint venture, partnership or other agreement
or instrument to which the Company is a party nor will such action result in the
material violation by the Company of any of the provisions of its respective
certificate or articles of incorporation or bylaws or any law, order, rule,
regulation, writ, injunction, decree of any government, governmental
instrumentality or court, domestic or foreign, except where such violation will
not have a material adverse effect on the financial condition of the Company.
(vi) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus and the Company will have the adjusted
capitalization set forth therein on the Initial Closing Date; all of the shares
of issued and outstanding capital stock of the Company set forth therein have
been duly authorized, validly issued and are fully paid and nonassessable; the
holders thereof do not have any rights of rescission with respect therefor and
are not subject to personal liability for any obligations of the Company by
reason of being stockholders under the laws of the State in which the Company is
incorporated; none of such outstanding capital stock is subject to or was issued
in violation of any preemptive or similar rights of any stockholder of the
Company; and such capital stock (including the Securities, the Option Securities
and the Representative's Securities) conforms in all material respects to all
statements relating thereto contained in the Prospectus.
(vii) The Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement or as described in the
Prospectus. The Securities, the Option Securities and the Representative's
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the respective descriptions thereof
contained in the Prospectus; except for payment of the applicable purchase price
paid upon exercise of the options or warrants, as the case may be the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Securities, the Option Securities and the Representative's Securities has
been duly and validly taken; and the certificates representing the Securities,
the Option Securities and the Representative's Securities will be in due and
proper form. Upon the issuance and delivery pursuant to the terms hereof of the
Securities, the Option Securities and the Representative's Securities to be sold
by the Company hereunder, the Underwriter will acquire good and marketable title
to such Securities, Option Securities and Representative's Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction of any kind whatsoever other than restrictions as may be
imposed under the securities laws.
(viii) The Company has good and marketable title to all properties and assets
described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described or referred
to in the Prospectus or which are not materially significant or important in
relation to its business or which have been incurred in the ordinary course of
business; except as described in the Prospectus all of the leases and subleases
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and the Company is not
in material default in respect of any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone adverse to the
Company's rights as lessor, sublessor, lessee or sublessee under any of the
leases or subleases mentioned above or affecting or questioning the Company's
right to the continued possession of the leased or subleased premises or assets
under any such lease or sublease; and
4
the Company owns or leases all such properties as are necessary to its
operations as now conducted and as contemplated to be conducted, except as
otherwise stated in the Prospectus.
(ix) The financial statements, together with related notes, set forth in the
Prospectus fairly present the financial position and results of operations of
the Company at the respective dates and for the respective periods to which they
apply. Said statements and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
in all material respects during the periods involved but any stub period has not
been audited by an independent accounting firm. There has been no material
adverse change or material development involving a prospective change in the
condition, financial or otherwise, or in the prospects, value, operation,
properties, business or results of operations of the Company whether or not
arising in the ordinary course of business, since the date of the financial
statements included in the Registration Statement and the Prospectus.
(x) Subsequent to the respective dates as of which information is given in
the Prospectus as it may be amended or supplemented, and except as described in
the Prospectus, the Company has not, directly or indirectly, incurred any
liabilities or obligations, direct or contingent, not in the ordinary course of
business or entered into any transactions not in the ordinary course of
business, which are material to the business of the Company as a whole and there
has not been any change in the capital stock of, or any incurrence of long term
debts by, the Company or any issuance of options, warrants or rights to purchase
the capital stock of the Company or declaration or payment of any dividend on
the capital stock of the Company or any material adverse change in the condition
(financial or other), net worth or results of operations of the Company as a
whole and the Company has not become a party to, any material litigation whether
or not in the ordinary course of business.
(xi) To the knowledge of the Company, there is no pending or threatened,
action, suit or proceeding to which the Company is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the condition (financial or other), business or prospects of the
Company as a whole or might materially and adversely affect the properties or
assets of the Company as a whole nor are there any actions, suits or proceedings
against the Company related to environmental matters or related to
discrimination on the basis of age, sex, religion or race which might be
expected to materially and adversely affect the conduct of the business,
property, operations, financial condition or earnings of the Company as a whole;
and no labor disturbance by the employees of the Company individually exists or
is, to the knowledge of the Company, imminent which might be expected to
materially and adversely affect the conduct of the business, property,
operations, financial condition or earnings of the Company as a whole.
(xii) Except as may be disclosed in the Prospectus, the Company has properly
prepared and filed all necessary federal, state, local and foreign income and
franchise tax returns, has paid all taxes shown as due thereon, has established
adequate reserves for such taxes which are not yet due and payable, and does not
have any tax deficiency or claims outstanding, proposed or assessed against it.
(xiii) The Company has sufficient licenses, permits, right to use trade or
service marks and other governmental authorizations currently required for the
conduct of its business as now being conducted and as contemplated to be
conducted and the Company is in all material respects complying therewith.
Except as set forth in the Prospectus, the expiration of any such licenses,
permits, or other governmental authorizations would not materially affect the
Company's operations. To its knowledge, none of the activities or businesses of
the Company are in material violation of, or cause the Company to materially
violate any law, rule, regulations, or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality.
(xiv) The Company has not at any time (i) made any contributions to any
candidate for political office in violation of law, or failed to disclose fully
any such contribution, or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasipublic duties, other than payments required or allowed by applicable law.
5
(xv) Except as set forth in the Prospectus the Company knows of no
outstanding claims for services either in the nature of a finder's fee,
brokerage fee or otherwise with respect to this financing for which the Company
or the Underwriters may be responsible, or which may affect the Underwriter's
compensation as determined by the National Association of Securities Dealers,
Inc. ("NASD") except as otherwise disclosed in the Prospectus or known by the
Underwriters.
(xvi) The Company has its property adequately insured against loss or
damage by fire and maintains such other insurance as is customarily maintained
by companies in the same or similar business.
(xvii) The Representative's Warrants herein described are duly and
validly authorized and upon delivery to the Representative in accordance
herewith will be duly issued and legal, valid and binding obligations of the
Company, except as the enforceability thereof may be limited by bankruptcy or
other similar laws affecting the rights of creditors generally or by equitable
principles, and except as the enforcement of indemnification provisions may be
limited by federal or state securities laws.
The Representative's Securities issuable upon exercise of any
of the Representative's Warrants have been duly authorized, and when issued upon
payment of the exercise price therefor, will be validly issued, fully paid and
nonassessable.
(xviii) Except as set forth in the Prospectus, no default exists in the
due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders agreement, note, loan
or credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which the property or assets (tangible or intangible) of the Company is
subject or affected.
(xix) To the best of the Company's knowledge it has generally enjoyed a
satisfactory employer-employee relationship with its employees and, to the best
of its knowledge, is in substantial compliance in all material respects with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. To the best of the Company's knowledge, there are no pending
investigations involving the Company, by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. To the best of the Company's
knowledge, there is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or to its knowledge involving the Company, or any predecessor entity, and none
has ever occurred. To the best of the Company's knowledge, no representation
question is pending respecting the employees of the Company, and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company. To the best of the Company's knowledge, no grievance or arbitration
proceeding is pending or to its knowledge threatened under any expired or
existing collective bargaining agreements of the Company. No labor dispute with
the employees of the Company is pending, or, to its knowledge is imminent; and
the Company is not aware of any pending or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors which
may result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company.
(xx) Except as may be set forth in the Registration Statement, the
Company does not maintain, sponsor or contribute to any program or arrangement
that is an "employee pension benefit plan," an "employee welfare benefit plan,"
or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(l) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute,
now or at any time previously, to a defined benefit plan, as defined in Section
3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Internal Revenue Code (the "Code"), which could subject the Company
to any tax penalty on prohibited transactions and which has not adequately been
corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as
6
they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401 (a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(xxi) None of the Company, or any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and Regulations)
has taken or will take, directly or indirectly, any action designed to or which
has constituted or which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities,
Option Securities, Representative's Securities or otherwise.
(xxii) None of the patents, patent applications, trademarks, service
marks, trade names, copyrights, and licenses and rights to the foregoing
presently owned or held by the Company, are in dispute or, to the best knowledge
of the Company's management are in any conflict with the right of any other
person or entity. The Company (i) except as disclosed in the Prospectus owns or
has the right to use, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing, and except as set forth in the Prospectus or otherwise disclosed
to the Underwriter in writing, to the best knowledge of the Company's management
is not obligated or under any liability whatsoever to make any material payments
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(xxiii) Except as disclosed in the Prospectus the Company owns and has
adequate right to use to the best knowledge of the Company's management all
trade secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information (collectively herein "intellectual property") required for or
incident to the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company. The Company is not aware of
any such development of similar or identical trade secrets or technical
information by others. The Company has valid and binding confidentiality
agreements with all of its officers, covering its intellectual property (subject
to the equitable powers of any court), which agreements have remaining terms of
at least two years from the effective date of the Registration Statement except
where the failure to have such agreements would not materially and adversely
effect the Company's business taken as a whole. The Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus, to be owned or leased by it
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet due
and payable.
(xxiv) McGladrey & Pullen, LLP., whose reports are filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(xxv) The Company has agreed to execute and has also caused to be duly
executed agreements pursuant to which each of the Company's officers and
directors and shareholders and any person or entity deemed to be an affiliate of
the Company pursuant to the Rules and Regulations has agreed not to, directly or
indirectly, sell, assign, transfer, or otherwise dispose of any shares of Common
Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) for a
period of not less than thirteen (13) months following such effective date
without the prior written consent of the Underwriter. The Company will cause the
Transfer Agent, as defined below, to mark an appropriate legend on the face of
stock certificates representing all of such securities and to place "stop
transfer" orders on the Company's stock ledgers.
7
(xxvi) The Registered Securities have been approved for listing on NASDAQ
or an Exchange.
(xxvii) Except as set forth in the Prospectus or disclosed in writing to
the Underwriter (which writing specifically refers to this Section), no officer
or director of the Company, holder of 5% or more of securities of the Company or
any "affiliate" or "associate" (as these terms are defined in Rule 405
promulgated under the Rules and Regulations) of any of the foregoing persons or
entities has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficiary interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set forth in the
Prospectus under "Certain Transactions" or disclosed in writing to the
Underwriter (which writing specifically refers to this Section) there are no
existing agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, and any officer, director, principal stockholder of the Company, or any
partner, affiliate or associate of any of the foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the Company, and
delivered to the Underwriter or to the Underwriter's counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriter
as to the matters covered thereby.
(xxix) Each of the minute books of the Company has been made available to
the Underwriter and contains a complete summary of all meetings and actions of
the directors and stockholders of the Company, since the time of its
incorporation and reflect all transactions referred to in such minutes
accurately in all respects.
(xxx)As of the Initial Closing Date, the Company will enter into the
Consulting Agreement substantially in the form filed as an Exhibit to the
Registration Statement with respect to the rendering of consulting services by
the Representative to the Company.
(xxxi) Except and only to the extent described in the Prospectus or
disclosed in writing to the Underwriter (which writing specifically refers to
this Section), no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company or to require
the Company to file a registration statement under the Act and no person or
entity holds any anti-dilution rights with respect to any securities of the
Company. Except as disclosed in the Prospectus, all rights so described or
disclosed have been waived or have not been triggered with respect to the
transactions contemplated by this Agreement, the Consulting Agreement and the
Representative's Warrant Agreement (including the warrants issuable thereunder).
(xxxii) The Company has not entered into any employment agreements with
its executive officers, except as disclosed in the Prospectus.
(xxxiii) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Registered Securities pursuant to
the Prospectus and the Registration Statement, the issuance of the Underwriter's
Warrants, the performance of this Agreement, the Representative's Warrant
Agreement and the Consulting Agreement, and the transactions contemplated hereby
and thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Securities, the Option Securities and the Underwriter's
Securities, except such as have been or may be obtained under the Act, otherwise
or may be required under state securities or blue sky laws in connection with
the Underwriter's purchase and distribution of the Securities, the Option
Securities, the Representative's Securities and the Underwriter's Warrants to be
sold by the Company hereunder or may be required by the Rules of the National
Association of Securities Dealer, Inc. ("NASD").
8
(xxxiv) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form SB-2, and there are no contracts or other documents which are
required by the Act to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct copies
of the documents of which they purport to be copies.
(xxxv) Within the past five (5) years, none of the Company's independent
public accountants has brought to the attention of the Company's management any
"material weakness" as defined in the Statement of Auditing Standard No. 60 in
any of the Company's internal controls.
4. Covenants of the Company. The Company covenants and agrees with you that:
(a) It will cooperate in all respects in making the Prospectus effective and
will not at any time, whether before or after the effective date, file any
amendment to or supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you or your counsel
shall have reasonably objected or which is not in material compliance with the
Act and the Rules and Regulations or applicable state law.
As soon as the Company is advised thereof, the Company will advise you, and
confirm the advice in writing, of the receipt of any comments of the Commission
or any state securities department, when the Registration Statement becomes
effective if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, of the effectiveness of any posteffective amendment to the Registration
Statement or Prospectus, or the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission or any state
securities department for amendment of the Prospectus or for supplementing of
the Prospectus or for additional information with respect thereto, of the
issuance of any stop order suspending the effectiveness of the Prospectus or any
order preventing or suspending the use of any Prospectus or any order suspending
trading in the Common Stock of the Company, or of the suspension of the
qualification of the Securities, the Option Securities or the Representatives
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any such purposes, and will use its best efforts to prevent the
issuance of any such order and, if issued, to obtain as soon as possible the
lifting or dismissal thereof.
The Company has caused to be delivered to you copies of such Prospectus, and the
Company has consented and hereby consents to the use of such copies for the
purposes permitted by law. The Company authorizes you and the dealers to use the
Prospectus and such copies of the Prospectus in connection with the sale of the
Securities, the Option Securities and the Representative's Securities for such
period as in the opinion of your counsel and our counsel the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. The Company will prepare and file with the states, promptly upon
your request, any such amendments or supplements to the Prospectus, and take any
other action, as, in the opinion of your counsel, may be necessary or advisable
in connection with the initial sale of the Securities, the Option Securities and
the Underwriter's Securities and will use its best efforts to cause the same to
become effective as promptly as possible.
The Company shall file the Prospectus (in form and substance satisfactory to
the Underwriter) or transmit the Prospectus by a means reasonably calculated to
result in filing with the Commission pursuant to rule 424(b)(1) or pursuant to
Rule 424(b)(3) not later than the Commission's close of business on the earlier
of (i) the second business day following the execution and delivery of this
Agreement, and (ii) the fifth business day after the effective date of the
Registration Statement.
9
In case of the happening, at any time within such period as a Prospectus is
required under the Act to be delivered in connection with the initial sale of
the Securities, the Option Securities and the Representative's Securities of any
event of which the Company has knowledge and which materially affects the
Company, or the securities thereof, and which should be set forth in an
amendment of or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required under the Act to be delivered, or in case it shall be
necessary to amend or supplement the Prospectus to comply with the Act, the
Rules and Regulations or any other law, the Company will forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they are made. The preparation and
furnishing of any such amendment or supplement to the Prospectus or supplement
to be attached to the Prospectus shall be without expense to you.
The Company will to the best of its ability comply with the Act, the Exchange
Act and applicable state securities laws so as to permit the initial offer and
sales of the Securities, the Option Securities and the Representatives
Securities under the Act, the Rules and Regulations, and applicable state
securities laws.
(b) It will cooperate to qualify the Securities and the Option Securities and
the Representative's Securities for initial sale under the securities laws of
such jurisdictions as you may designate and will make such applications and
furnish such information as may be required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long as the Underwriter may reasonably request.
(c) So long as any of the Securities, the Option Securities or the
Representative's Securities remain outstanding in the hands of the public, the
Company, at its expense, will annually furnish to its shareholders a report of
its operations to include financial statements audited by independent public
accountants, and will furnish to the Underwriter as soon as practicable after
the end of each fiscal year, a balance sheet of the Company as at the end of
such fiscal year, together with statements of operations, shareholders' equity,
and changes in cash flow of the Company for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent public accountants.
(d) It will deliver to you at or before the Initial Closing Date three signed
copies of the Registration Statement including all financial statements and
exhibits filed therewith, whether or not incorporated by reference. The Company
will deliver to you, from time to time until the effective date of the
Prospectus, as many copies of the Prospectus as you may reasonably request. The
Company will deliver to you on the effective date of the Prospectus and
thereafter for so long as a Prospectus is required to be delivered under the Act
and the Rules and Regulations as many copies of the Prospectus, in final form,
or as thereafter amended or supplemented, as you may from time to time
reasonably request.
(e) The Company will apply the net proceeds from the sale of the Securities
and the Option Securities substantially in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the proceeds shall be used, directly
or indirectly, to acquire any securities issued by the Company, without the
prior written consent of the Underwriter.
(f) As soon as it is practicable, but in any event not later than the first
(lst) day of the fifteenth (15th) full calendar month following the effective
date of the Registration Statement, the Company will make available to its
security holders and the Underwriter an earnings statement (which need not be
audited) covering a period of at least twelve (12) consecutive months beginning
after the effective date of the Registration Statement, which shall satisfy the
requirements of Section 11(a) of the Act and Rule 158(a) of the Rules and
Regulations.
10
(g) Non-Accountable Expense Allowance and other Costs and Expenses.
The Company shall pay to the Underwriter at each closing date, and to be
deducted from the purchase price for the Securities and the Option Securities,
an amount equal to three percent (3%) of the gross proceeds received by the
Company from the sale of the Securities and the Option Securities at such
closing date less in the case of the Initial Closing Date, the sum of $50,000
previously paid by the Company. If the sale of the Securities by the Underwriter
is not consummated for any reason not attributable to the Underwriter, or if (i)
the Company withdraws the Registration Statement from the Commission or does not
proceed with the public offering, or (ii) the representations in Section 3
hereof are not correct or the covenants cannot be complied with, or (iii) there
has been a materially adverse change in the condition, prospects or obligations
of the Company or a materially adverse change in stock market conditions from
current conditions, all as determined by the Underwriter, then the Company shall
reimburse the Underwriter for its out of pocket expenses including without
limitation, its legal fees and disbursements all on an accountable basis but not
to exceed $100,000 (less the $50,000 previously paid by the Company), and if any
excess remains from the advance previously paid, such excess will be returned to
the Company.
Costs and Expenses. Subject to the provisions above the Company will pay
all costs and expenses incident to the performance of this Agreement by the
Company including, but not limited to, the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement and Prospectus (including the fee of the Commission, any securities
exchange and the NASD in connection with the filing required by the NASD
relating to the offering of the Securities contemplated hereby); all expenses,
including fees of counsel, which shall be due and payable on the Closing Date in
connection with the qualification of the Securities under the state securities
or blue sky laws; the cost of furnishing to you copies of the Prospectus, this
Agreement, the cost of printing the certificates representing the Securities and
of preparing and photocopying the Underwriting Agreement and related
Underwriting documents, the cost of three underwriter's bound volumes, any
advertising costs and expenses, including but not limited to the Company's
expenses on "road show" information meetings and presentations, prospectus
memorabilia, issue and transfer taxes, if any. The Company will also pay all
costs and expenses incident to the furnishing of any amended Prospectus of or
any supplement to be attached to the Prospectus.
(h) As a condition of the closing, the Company shall obtain from its officers,
directors and shareholders , written commitments restricting the sale of
100% of the common shares of stock outstanding for (13) months after the
effective date . The Company will not, without the underwriters consent,
which will not be unreasonably withheld , sell or offer to sell any shares
of common stock or other equity securities for (13) months after the
closing of the offering, except in connection with acquisitions or pursuant
to warrants and options immediately outstanding prior to the closing.
(i) During a date five years after the date hereof, the Company will make
available to its shareholders, as soon as practicable, and deliver to the
Underwriter:
(1) as soon as they are available, copies of all reports (financial or
other) mailed to shareholders;
(2) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(3) every press release and every material news item or article of
interest to the financial community in respect of the Company or its
affairs which was prepared and released by or on behalf of the Company;
and
11
(4) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which the
Underwriter may request.
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(j) The Company will maintain a Transfer Agent and, if necessary under the
jurisdiction of incorporation of the Company, a Registrar (which may be the same
entity as the Transfer Agent) for its Common Stock.
(k) The Company will furnish to the Underwriter or on the Underwriter's
order, without charge, at such place as the Underwriter may designate, copies of
each Preliminary Prospectus, the Final Prospectus the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriter may request.
(1) Neither the Company nor any of its officers, directors, stockholders or
any of its affiliates will take, directly or indirectly, any action designed to,
or which might in the future reasonably be expected to cause or result in
stabilization or manipulation of the price of any of the Company's securities.
(m) The Company shall timely file all such reports, forms or other documents
as may be required (including, but not limited to, a Form SR as may be required
pursuant to Rule 463 under the Act) from time to time, under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(n) The Company shall cause the Securities to be listed on the NASDAQ Small
Cap Market or on an exchange for a period of five (5) years from the date
hereof, and use its best efforts to maintain the listing of the Securities to
the extent they are outstanding.
(o) As soon as practicable, (i) before the effective date of the
Registration Statement, file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Securities and (ii) but in no event
more than 30 days from the effective date of the Registration Statement, take
all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and/or Moody's OTC Manual and to continue such
inclusion for a period of not less than five years if the securities are not
listed on an exchange.
(p) Until the completion of the distribution of the Securities, the Company
shall not without the prior written consent of the Underwriter and its counsel
which consent shall not be unreasonably withheld or delayed, issue, directly or
indirectly, any press release or other communication or hold any press
conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in 'the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(q) Until the earlier of (i) five (5) years from the date hereof or (ii) the
sale to the public of the Warrant Shares, the Company will not take any action
or actions which may prevent or disqualify the Company's use of Form SB-2 (or
other appropriate form) for the registration under the Act of the Warrant Shares
and the Representative's Securities.
(r) Commencing one year from the effective date of the registration
statement, the Company agrees to pay the Underwriter a 5% solicitation
fee for the exercise of the publicly-held warrants such solicitation
being subject to applicable SEC and NASD Rules.
(s) The Company agrees to retain the Underwriter's for a period of 36 months
at $3000 per month, to continue the development of interest and
sponsorship in the common shares with such amount being paid in advance
at the closing.
12
5. Conditions of the Underwriter's Obligations. The obligation of the
Underwriters to offer and sell the Securities and the Option Securities is
subject to the accuracy (as of the date hereof, and as of the Closing Dates) of
and compliance with the representations and warranties of the Company to the
performance by it of its agreement and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective as and when
cleared by the Commission, and you shall have received notice thereof, on or
prior to any closing date no stop order suspending the effectiveness of the
Prospectus shall have been issued and no proceedings for that or similar purpose
shall have been instituted or shall be pending, or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel to the Underwriter; and
qualification, under the securities laws of such states as you may designate, of
the issue and sale of the Securities upon the terms and conditions herein set
forth or contemplated and containing no provision unacceptable to you shall have
been secured, and no stop order shall be in effect denying or suspending
effectiveness of such qualification nor shall any stop order proceedings with
respect thereto be instituted or pending or threatened under such law.
(b) On any closing date and, with respect to the letter referred to in
subparagraph (iii), as of the date hereof, you shall have received:
(i) the opinion, together with such number of signed or photostatic copies of
such opinion as you may reasonably request, addressed to you by LeClair Ryan.,
counsel for the Company, in form and substance reasonably satisfactory to the
Underwriter and William M. Prifti, Esq., counsel to the Underwriter, dated each
such closing date, to the effect that:
(A) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the jurisdiction in which it is
incorporated and has all necessary corporate power and authority to carry on its
business as described in the Prospectus.
(B) The Company is qualified to do business in each jurisdiction in which
conducting its business requires such qualification, except where the failure to
be so qualified would not have a material adverse effect on the Company's
business or assets.
(C) The Company has the full corporate power and authority to enter into this
Agreement, the Representative's Warrant Agreement and the Consulting Agreement
and to consummate the transactions provided for therein and each such Agreement
has been duly and validly authorized, executed and delivered by the Company.
Each of this Agreement, the Consulting Agreement and the Representative's
Warrant Agreement, assuming due authorization, execution and delivery by each
other party thereto, constitutes a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency or similar laws governing the rights of creditors and to
general equitable principles, and provided that no opinion need be given as to
the enforceability of any indemnification or contribution provisions, and none
of the Company's execution or delivery of this Agreement, the Consulting
Agreement or the Representative's Warrant Agreement, its performance hereunder
or thereunder, its consummation of the transactions contemplated herein or
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any material breach or
violation of any of the terms or provisions of, or constitutes or will
constitute a material default under, or result in the creation or imposition of
any material lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of (A) the
articles of incorporation or by-laws of the Company, (B) to the knowledge of
such counsel, any material license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company is a party
or by which it is or may be bound, or (C) to the knowledge of such counsel, any
statute, judgment, decree, order, rule or regulation applicable to the Company,
whether domestic or foreign.
13
(D) The Company had authorized and outstanding capital stock as set forth in
the Prospectus under the heading "Capitalization" as of the date set forth
therein, and all of such issued and outstanding shares of capital stock have
been duly and validly authorized and issued, and to the knowledge of such
counsel are fully paid and nonassessable, and to the knowledge of such counsel
no stockholder of the Company is entitled to any preemptive rights to subscribe
for, or purchase shares of the capital stock and to the knowledge of such
counsel none of such securities were issued in violation of the preemptive
rights of any holders of any securities of the Company.
(E) To the knowledge of such counsel, the Company is not a party to or bound
by any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement, the Representative's Warrant Agreement, and except as described in
the Prospectus. The Common Stock, the Warrants and the Representative's Warrants
each conforms in all material respects to the respective descriptions thereof
contained in the Prospectus. The outstanding shares of Common Stock, the
Redeemable Warrant and the Warrant Stock and the Representative's Warrant Stock,
upon issuance and delivery and payment therefore in the manner described herein,
the Warrant Agreement and the Representative Agreement, as the case may be, will
be, duly authorized, validly issued, fully paid and nonassessable. There are no
preemptive or other rights to subscribe for or to purchase, or any restriction
upon the voting or transfer of, any shares of Common Stock pursuant to the
Company's articles of incorporation, by-laws, other governing documents or any
agreement or other instrument known to such counsel to which the Company is a
party or by which it is bound.
(F) The certificates representing the Securities comprising the Common Stock
and Redeemable Warrants are in due and proper form and each of the Warrant Stock
and the Representative's Warrant has been duly authorized and reserved for
issuance and when issued and delivered in accordance with the respective terms
of the Warrant Agreement and Representative's Warrant Agreement, respectively,
will duly and validly issued, fully paid and nonassessable.
(G) To the knowledge of such counsel, there are no claims, suits or other
legal proceedings pending or threatened against the Company in any court or
before or by any governmental body which might materially affect the business of
the Company or the financial condition of the Company as a whole, except as set
forth in or contemplated by the Prospectus.
(H) Based on oral and/or written advice from the staff of the Commission, the
Registration Statement has become effective and, to the knowledge of such
counsel, no stop order suspending the effectiveness of the Prospectus is in
effect and no proceedings for that purpose are pending before, or threatened by,
federal or by a state securities administrator.
(I) To the knowledge of such counsel, there are no legal or governmental
proceedings, actions, arbitrations, investigations, inquiries or the like
pending or threatened against the Company of a character required to be
disclosed in the Prospectus which have not been so disclosed, questions the
validity of the capital stock of the Company or this Agreement or the
Representative's Warrant Agreement or might adversely affect the condition,
financial or otherwise, or the prospects of the Company or which could adversely
affect the Company's ability to perform any of its obligations under this
Agreement, or the Representative's Warrant Agreement.
(J) To such counsel's knowledge, there are no material agreements, contracts
or other documents known to such counsel required by the Act to be described in
the Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and to such counsel's
knowledge (A) the exhibits which have been filed are correct copies of the
documents of which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or amendment
thereto of contracts and other documents to which the Company is a party or by
which it is bound, including any document to which the Company is a party or by
which it is bound incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form SB-2.
14
(K) No consent, approval, order or authorization from any regulatory board,
agency or instrumentality having jurisdiction over the Company, or its
properties (other than registration under the Act or qualification under state
or foreign securities law or approval by the NASD) is required for the valid
authorization, issuance, sale and delivery of the Securities, the Option
Securities or the Representative's Warrant.
(L) The statements in the Prospectus under "Risk Factors-Control by Existing
Stockholders," "Management-Limitation of Liability" "Description of the
Securities," and "Shares Eligible For Future Sale" have been reviewed by such
counsel, and insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are correct in
all material respects.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not certified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the Closing Date and on any later date on which Option Shares are to
be purchased, the Registration Statement and any amendment or supplement, when
such documents became effective or were filed with the Commission (other than
the financial statements including the notes thereto and supporting schedules
and other financial and statistical information derived therefrom, as to which
such counsel need express no comment) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or at the Closing
Date or any later date on which the Option Shares are to be purchased, as the
case may be, the Prospectus and any amendment or supplement thereto (other than
the financial statements including the notes thereto and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
Such opinion shall also cover such other matters incident to the transactions
contemplated hereby and the offering Prospectus as you or counsel to the
Underwriter shall reasonably request. In rendering such opinion, to the extent
deemed reasonable by them, such counsel may rely upon certificates of any
officer of the Company or public officials as to matters of fact of which the
maker of such certificate has knowledge.
(ii) a certificate, signed by the Chief Executive Officer and the Principal
Financial or Accounting Officer of the Company dated the Closing Date, to the
effect that with regard to the Company, each of the conditions set forth in
Section 5(d) have been satisfied.
(iii) a letter, addressed to the Underwriter and in form and substance
satisfactory to the Underwriter in all respects (including the nonmaterial
nature of the changes or decreases, if any, referred to in clause (D) below),
from McGladrey & Pullen, LLP, dated, respectively, as of the effective date of
the Registration Statement and as of the Closing Date, as the case may be:
(A) Confirming that they are independent public accountants with respect to
the Company and its consolidated subsidiaries, if any, within the meaning of the
Act and the applicable published Rules and Regulations.
(B) Stating that, in their opinion, the financial statements, related notes
and schedules of the Company and its consolidated subsidiaries, if any, included
in the Registration Statement examined by them comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations thereunder.
(C) Stating that, with respect to the period from November 30, 1996, to a
specified date (the specified date") not earlier than five (5) business days
prior to the date of such letter, they have read the minutes of meetings of the
stockholders and board of directors (and various committees thereof) of the
Company and its consolidated
15
subsidiaries, if any, for the period from November 30, 1996 through the
specified date, and made inquiries of officers of the Company and its
consolidated subsidiaries, if any, responsible for financial and accounting
matters and, especially as to whether there was any decrease in sales, income
before extraordinary items or net income as compared with the corresponding
period in the preceding year; or any change in the capital stock of the Company
or any change in the longterm debt or any increase in the short-term bank
borrowings or any decrease in net current assets or net assets of the Company or
of any of its consolidated subsidiaries, if any, and further stating that while
such procedures and inquiries do not constitute an examination made in
accordance with generally accepted auditing standards, nothing came to their
attention which caused them to believe that during the period from November 30,
1996, through the specified date there were any decreases as compared with the
corresponding period in the preceding year in sales, income before extraordinary
items or net income; or any change in the capital stock of the Company or
consolidated subsidiary, if any, or any change in the long term debt or any
increase in the short-term bank borrowings (other than any increase in
short-term bank borrowings in the ordinary course of business) of the Company or
any consolidated subsidiary, if any, or any decrease in the net current assets
or net assets of the Company or any consolidated subsidiary, if any; and
(D) Stating that they have carried out certain specified procedures
(specifically set forth in such letter or letters) as specified by the
Underwriter (after consultations with McGladrey & Pullen, LLP relating to such
procedures), not constituting an audit, with respect to certain tables,
statistics and other financial data in the Prospectus specified by the
Underwriter and such financial data not included in the Prospectus but from
which information in the Prospectus is derived, and which have been obtained
from the general accounting records of the Company or consolidated subsidiaries,
if any, or from such accounting records by analysis or computation, and having
compared such financial data with the accounting records of the Company or the
consolidated subsidiaries, if any, stating that they have found such financial
data to agree with the accounting records of the Company.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Prospectus and other related matters shall be satisfactory to or
approved by counsel to the Underwriter and you shall have received from LeClair
Ryan, Esq., a law corporation, a signed opinion dated as of each closing date,
with respect to the incorporation of the Company, the validity of the
Securities, the form of the Prospectus, (other than the financial statements
together with related notes and other financial and statistical data contained
in the Prospectus or omitted therefrom, as to which such counsel need express no
opinion), the execution of this Agreement and other related matters as you may
reasonably require.
(d) At each closing date, (i) the representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects with the same effect as if made on and as of such closing date; (ii)
the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations and in all material respects conform to the
requirements thereof, and neither the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary, in light of the
circumstances under which they were made, in order to make the statements
therein not misleading; (iii) there shall have been since the respective dates
as of which information is given no material adverse change in the business,
properties or condition (financial or otherwise), results of operations, capital
stock, longterm debt or general affairs of the Company from that set forth in
the Prospectus, except changes which the Prospectus indicates might occur after
the effective date of the Prospectus, and the Company shall not have incurred
any material liabilities or material obligations, direct or contingent, or
entered into any material transaction, contract or agreement not in the ordinary
course of business other than as referred to in the Prospectus and which would
be required to be set forth in the Prospectus; and (iv) except as set forth in
the Prospectus, no action, suit or proceeding at law or in equity shall be
pending or threatened against the Company which would be required to be set
forth in the Prospectus, and no proceedings shall be pending or threatened
against the Company or any subsidiary before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company.
(e) On the Initial Closing Date, the Company shall have executed and
delivered to the Underwriter, (i) the Representatives' Warrant Agreement
substantially in the form filed as an Exhibit to the Registration Statement in
final
16
form and substance satisfactory to the Underwriter, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(f) On or before the Initial Closing Date, the Securities shall have been
duly approved for listing on an exchange or on NASDAQ. .
(g) On or before the Initial Closing Date, there shall have been delivered to
the Underwriter all of the Lock-up Agreements required to be delivered pursuant
to Section 3(a)(xxv) and 4(h), in form and substance satisfactory to the
Underwriter and Underwriter's counsel.
If any condition to the Underwriter's obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the case
may be, is not so fulfilled, the Underwriter may terminate this Agreement or, if
the Underwriter so elects, it may waive any such conditions which have not been
fulfilled or extend the time for their fulfillment.
6. Conditions of the Company's Obligations. The obligation of the Company to
sell and deliver the Securities is subject to the following:
(a) The provisions regarding the effective date, as described in Section 10.
(b) At the Initial Closing Date, no stop order suspending the effectiveness
of the Prospectus shall have been issued under the Act or any proceedings
therefor initiated or threatened by the Commission or by any state securities
department.
(c) Tender of payment by the Underwriter in accord with Section 2 hereof.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
its employees and each person, if any, who controls you within the meaning of
the Act, against any losses, claims, damages or liabilities, joint or several
(which shall, for any purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
each Underwriter or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission made in the Prospectus, or such amendment or supplement to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, which is in reliance upon and in conformity
with written information furnished by the Company to you specifically for use in
the preparation thereof, and provided further that the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of you with
respect to any person asserting any such loss, claim, damage or liability who
has purchased the Securities which are the subject thereof if you or any
participants failed to send or give a copy of the Prospectus to such person at
or prior to the written confirmation of the sale of such Securities to such
person and except that, with respect to any untrue statement or omission or any
alleged untrue statement or omission, made in any Pre-Effective Prospectus, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter ( or to any person controlling any such underwriter)
from whom the person asserting any such loss, claim, damage or liability
purchased the securities concerned to the extent that such untrue statement or
omission, or alleged untrue statement or omission, has been corrected in a later
Pre-Effective Prospectus or in the Final Prospectus unless the Underwriter
circulated a later Pre-Effective Prospectus or the Final Prospectus to such
person
(b) Each Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers, each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or
17
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission was made in the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by you specifically for use in the
preparation thereof. This indemnity will be in addition to any liability which
any Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party, similarly notified, to assume the
defense thereof, subject to the provisions herein stated, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that, if the indemnified party is you or a person who controls you, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both you or such controlling person
and the indemnifying party and you or such controlling person shall have been
advised by such counsel that there is a conflict of interest which would prevent
counsel for the indemnifying party from representing the indemnifying party and
you or such controlling person (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of you or such
controlling person, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction or which are consolidated
into the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for you and all such controlling persons, which firm
shall be designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnified party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnified party.
8. Contribution. In order to provide for just and equitable contribution
tinder the Act in any case in which (i) the indemnifying party makes a claim for
indemnification pursuant to Section 7 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of the
Underwriters, then the Company and the Underwriters in the aggregate shall
contribute to the aggregate losses, claims, damages, or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all costs of defense and investigation and all attorneys'
fees) in either such case (after contribution from others) in such proportions
that the Underwriters are responsible in the aggregate for that portion of such
losses, claims, damages or liabilities determined by multiplying the total
amount of such losses, claims, damages or liabilities times the difference
between the public offering price and the commission to the Underwriter and
dividing the product thereof by the public offering price, and the Company, if
applicable, shall be responsible for that portion of such losses, claims,
damages or liabilities times the commission to the Underwriters and dividing the
product thereof by the public offering price; provided, however, that the
Underwriters shall not be required to so contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by the Underwriters
hereunder if such allocation is not permitted by applicable law, then the
relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in
18
such damages and other relevant equitable considerations shall also be
considered. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 12(2) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any person having liability under Section 12 of the Act other than the Company
and the Underwriter. As used in this paragraph, the term "Underwriters" includes
any person who controls the Underwriters within the meaning of Section 15 of the
Act. If the full amount of the contribution specified in this paragraph is not
permitted by law, then any Underwriter and each person who controls any
Underwriter shall be entitled to contribution from the Company, to the full
extent permitted by law.
9. Effective Date. This Agreement shall become effective at 10:00 a.m. New
York time on the next full business day following the effective date of the
Registration Statement, or at such other time after the effective date of the
Prospectus as you in your discretion shall first commence the public offering of
any of the Securities covered thereby, provided, however, that at all times the
provisions of Sections 7, 8, 9 and 11 shall be effective.
10. Termination.
(a) This Agreement, may be terminated at any time prior to the Closing
Date by you if in your judgment it is impracticable to offer for sale or to
enforce contracts made by you for the sale of the Securities agreed to be sold
hereunder by reason of (i) the Company as a whole having sustained a material
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree, (ii) trading in securities of the Company having been suspended by a
state securities administrator or by the Commission, (iii) material governmental
restrictions having been imposed on trading in securities generally (not in
force and effect on the date hereof) or trading on the New York Stock Exchange,
American Stock Exchange, or in the over-the-counter market shall have been
suspended, (iv) a banking moratorium having been declared by federal or New York
State authorities, (v) an outbreak or escalation of hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body, of any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is believed likely by you to have a material impact on the
business, financial condition or financial statements of the Company; or (vii)
any material adverse change having occurred, since the respective dates as of
which information is given in the Prospectus, in the condition, financial or
otherwise, of the Company as a whole, whether or not arising in the ordinary
course of business, (viii) .Francis O'Donnell .ceases to be employed by the
Company in his present capacity; (ix) the Securities are not listed on any
exchange or on NASDAQ.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 10 or in Section 9, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. Representations, Warrants and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company (or its officers) and the Underwriter set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation made by or on behalf of the Underwriter, the Company, or
any of their officers or directors and will survive delivery of and payment for
the Securities.
12. Notices. All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to you, will be mailed,
delivered or telephoned and confirmed to you at, Schneider
Securities,Inc.,1120 Lincoln Street, Denver, Colorado 80203 Attn:
Investment Banking Department; and to the Company to PerArdua
Corporation, 709 The Hamptons Lane,Town and Country, Missouri 63017,
Attn: Francis O'Donnell.
19
13. Parties in Interest. This Agreement is made solely for the benefit of
the Underwriter(s), and the Company, and their respective controlling
persons, directors and officers, and their respective successors,
assigns, executors and administrators. No other person shall acquire or
have any right under or by virtue of this Agreement.
14. Headings. The Section headings in this Agreement have been inserted as a
matter of convenience of reference and are not a part of this Agreement.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado , without giving effect to
conflict of law principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
instrument.
If the foregoing correctly sets forth the understanding between the Company
and you, as Representative of the several underwriters, please so indicate in
the space provided below for such purpose, whereupon this letter and your
acceptance shall constitute a binding agreement between us.
Very truly yours,
PerArdua Corporation
By:
----------------------------
(Authorized Officer)
Francis O'Donnell, President
Accepted as of the date first above written:
Schneider Securities,Inc..
As Representative of the several Underwriters
By:
----------------------------------------
(Authorized Officer)
, (Vice) President
EXHIBIT A
SCHEDULE I
UNDERWRITERS
Shares of
Underwriter Common Stock Redeemable Warrant
- ----------- ------------ ------------------
Schneider Securities,Inc...
------------ ------------------
TOTAL 1,000,000 1,000,000
- -----
EXHIBIT 1.2
EXHIBIT B
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE. YOUR EXECUTION HEREOF WELL INVOLVE NO OBLIGATION OR COMMITMENT OF ANY KIND
UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE.
PerArdua Corporation
SELECTED DEALERS AGREEMENT
--------------------------
, 1997
Dear Sirs:
1. Schneider Securities,Inc.named as the Underwriter ("Underwriter") in the
enclosed preliminary Prospectus, proposes to offer on a firm commitment basis,
subject to the terms and conditions and execution of the Underwriting Agreement,
1,000,000 Shares of Common Stock at $5.00 per share and 1,000,000 Redeemable
Warrants at $.10 per Warrant ("Securities") of the above Company. The Securities
are more particularly described in the enclosed preliminary Prospectus,
additional copies of which will be supplied in reasonable quantities upon
request. Copies of the definitive Prospectus will be supplied after the
effective date of the Registration Statement.
2. The Underwriter is soliciting offers to buy, upon the terms and
conditions hereof, a part of the Securities from Selected Dealers, including you
who are to act as principal and who are (i) registered with the Securities and
Exchange Commission ("Commission") as broker-dealers under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), or (ii) dealers
or institutions with their principal place of business located outside the
United States, its territories and possessions who are not eligible for
membership in the NASD and who agree to make no sales within the United States,
its territories or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's Interpretation
with Respect to FreeRiding and Withholding and with Sections2730, 2740 and 2420,
to the extent applicable to foreign nonmember brokers or DEALERS, and Section
2750 of the NASD's Rules of Fair Practice. The Securities are to be offered at a
public price of $ 5.00 per share of Common Stock and $0.10 per Redeemable
Warrant. Selected Dealers will be allowed a concession of not less than $ .25
per share and $ .005 per Redeemable Warrant, except as provided below. You will
be notified of the precise amount of such concession prior to the effective date
of the Registration Statement. You may reallow not in excess of $ .12 per share
and $.0025 per Reedeemable Warrant to dealers who meet the requirements set
forth in this Section 2. This offer is solicited subject to the issuance and
delivery of the Securities and their acceptance by the Underwriter, to the
approval of legal matters by counsel and to the terms and conditions as herein
set forth.
3. Your offer to purchase may be revoked in whole or in part without obligation
or commitment of any kind by you and any time prior to acceptance and no offer
may be accepted by us and no sale can be made until after the registration
statement covering the Securities has become effective with the Commission.
Subject to the foregoing, upon execution by you of the Offer to Purchase below
and the return of same to us, you shall be deemed to have
offered to purchase the number of Securities set forth in your offer on the
basis set forth in paragraph 2 above. Any oral notice by us of acceptance of
your offer shall be immediately followed by written or telegraphic confirmation
preceded or accompanied by a copy of the Prospectus. If a contractual commitment
arises hereunder, all the terms of this Selected Dealers Agreement shall be
applicable. We may also make available to you an allotment to purchase
Securities, but such allotment shall be subject to modification or termination
upon notice from us any time prior to an exchange of confirmations reflecting
completed transactions. All references hereafter in this Agreement to the
purchase and sale of Securities assume and are applicable only if contractual
commitments to purchase are completed in accordance with the foregoing..
4. You agree that in reoffering said Securities, if your offer is accepted
after the effective date, you will make a bona fide public distribution of same.
You will advise us upon request of Securities purchased by you remaining unsold
and we shall have the right to repurchase such Securities upon demand at the
public offering price without paying the concession with respect to any
Securities so repurchased. Any of the Securities purchased by you pursuant to
this Agreement are to be subject to the terms hereof. Securities shall not be
offered or sold by you below the public offering price before the termination of
this Agreement.
5. Payment for Securities which you purchase hereunder shall be made by you
on or before five (5) business days after the date of each confirmation by
certified or bank cashier's check payable to the Underwriter. Certificates for
the Securities shall be delivered as soon as practicable after delivery
instructions are received by the Underwriter.
6. A registration statement covering the offering has been filed with the
Securities and Exchange Commission in respect to the Securities. You will be
promptly advised when the registration statement becomes effective. Each
Selected Dealer in selling Securities pursuant hereto agrees (which agreement
shall also be for the benefit of the Company) that it will comply with the
applicable requirements of the Securities Act of 1933 and of the Securities
Exchange Act of 1934 and any applicable rules and regulations issued under said
Acts. No person is authorized by the Company or by the Underwriter to give any
information or to make any representations other than those contained in the
Prospectus in connection with the sale of the Securities. Nothing contained
herein shall render the Selected Dealers a member of the Underwriting Group or
partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been advised
by counsel the Securities have been qualified for sale or are exempt under the
respective securities or blue sky laws of such states, but we have not assumed
and will not assume any obligation or responsibility as to the right of any
Selected Dealer to sell Securities in any state. You agree not to sell
Securities in any other state or jurisdiction and to not sell Securities in any
state or jurisdiction unless you are qualified or licensed to sell securities in
such state or jurisdiction.
8. The Underwriter shall have full authority to take such action as it may
deem advisable in respect of all matters pertaining to the offering or arising
thereunder. The Underwriter shall not be under any liability to you, except such
as may be incurred under the Securities Act of 1933 and the rules and
regulations thereunder, except for lack of good faith and except for obligations
assumed by us in this Agreement, and no obligation on our part shall be implied
or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Securities; such contractual commitment can only be
made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the NASD and
registered as a broker-dealer with the Commission, or that you are a foreign
broker-dealer not eligible for membership under Section 1 of the Bylaws of the
NASD who agrees to make no sales within the United States, its territories or
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation with Respect to
FreeRiding and Withholding and with Sections 2730, 2740 and 2420 to the extent
applicable to foreign nonmember brokers and dealers, and Section 2750 of the
NASD's Rules of Fair Practice. Your attention is called to and you agree to
comply with the following: (a) Article III, Section 1 of the Rules of Fair
Practice of the NASD and
2
the interpretations of said Section promulgated by the Board of Governors of the
NASD including Section 24 and the interpretation with respect to "Free-Riding
and Withholding;" (b) Section 10(b) of the 1934 Act and Rules 10b-6, 10b-10 of
the general rules and regulations promulgated under the 1934 Act; and (c) Rule
15c2-8 of the general rules and regulations promulgated under the 1934 Act
requiring the distribution of a preliminary Prospectus to all persons reasonably
expected to be purchasers of the Securities from you at least 48 hours prior to
the time you expect to mail confirmations. You, as a member of the NASD, by
signing this Agreement, acknowledge that you are familiar with the cited laws
and rules and agree that you will not directly and/or indirectly violate any
provisions of applicable law in connection with your participation in the
distribution of the Securities.
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase Securities in the open
market or otherwise make a market in the Securities or otherwise attempt to
induce others to purchase the Securities in the open market. Nothing contained
in this paragraph 11 shall, however, preclude you from acting as agent in the
execution of unsolicited orders of customers in transactions effectuated for
them through a market maker.
12. You understand that the Underwriter may in connection with the offering
engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased and you agree to pay such amount to us on
demand.
13. By submitting an Offer to Purchase you confirm that you may, in
accordance with Rule 15c-1 adopted under the 1934 Act, agree to purchase the
number of Securities you may become obligated to purchase under the provisions
of this Agreement.
14. All communications from you should be directed to us at Schneider
Securities,Inc.,2 Charles Street, Providence, R.I. Attn: Pasquale Ruggieri, Vice
President (1 800-709-4040) and fax (401-274-8942). All communications from us to
you shall be directed to the address to which this letter is mailed.
Very truly yours,
Schneider Securities, Inc..
By
---------------------------------
(Authorized Officer)
3
OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke as set forth in paragraph 3) _________________________ * Securities in
accordance with the terms and conditions set forth above. We hereby acknowledge
receipt of the Prospectus referred to in the first paragraph thereof relating to
such Securities. We further state that in purchasing such Securities we have
relied upon such Prospectus and upon no other statement whatsoever, written or
oral.
- ------------------------------------
By
--------------------------------
(Authorized Officer)
*If a number appears here which does not correspond with what you wish to offer
to purchase, you may change the number by crossing out the number, inserting a
different number and initializing the change.
EXHIBIT 1.3
PERARDUA CORPORATION
1,000,000 SHARES
OF COMMON STOCK
AND
1,000,000 REDEEMABLE WARRANTS
AGREEMENT AMONG UNDERWRITERS
, 19
Schneider Securities, Inc.
1120 Lincoln Street
Denver, Colorado 80203
GENTLEMEN:
We wish to confirm as follows the agreement among you, the undersigned and
the other members of the Underwriting Group named in Schedule I to the
Underwriting Agreement, as it is to be executed (all such parties being herein
called the "Underwriters"), with respect to the purchase by the Underwriters
severally from PerArdua Corporation ("Company") of shares of Common Stock and
Redeemable Warrant ("Securities") set forth in Schedule I to the Underwriting
Agreement. The number of Securities to be purchased by each Underwriter from the
Company shall be determined in accordance with Section 2 of the Underwriting
Agreement. It is understood that changes may be made in those who are to be
Underwriters and in the respective numbers of Securities to be purchased by
them, but that the Underwriting Agreement will not be changed without our
consent, except as provided herein, and in the Underwriting Agreement. The
obligations of the Underwriters to purchase the number of Securities set
opposite their respective names in Schedule I to the Underwriting Agreement, are
herein called their "underwriting obligations." The number of Securities set
opposite our name in said Schedule I, are herein called "our Securities." For
purposes of this Agreement the following definitions shall be applicable:
(a) "Manager's Concession" shall be the compensation to you for acting as
Manager as provided in Paragraph 1 of not less than percent ( %) of the
underwriting discount. The Manager's Concession shall include the right to a
portion of the warrants to be issued pursuant to the Underwriting Agreement and,
the right to the nonaccountable expenses to be paid pursuant to the Underwriting
Agreement.
(b) "Underwriting Group Concession" shall mean compensation to members of
the Underwriting Group for assuming the underwriting risk and shall be not less
than percent ( %) of the underwriting discount.
(c) "Dealer's Concession" shall mean compensation to Dealers, who are
members of the Selling Group and shall, as to Dealers who have executed an
agreement with you, be not less than percent ( %) of the underwriting discount.
(d) "Dealer's Reallowance Concession" shall mean the compensation allowed
Dealers by Underwriters other than you and shall be one-half (1/2) of the
Dealer's Concession.
(e) It is contemplated that the underwriting discount will be ten percent
(10%) of the offering price. You, in your absolute discretion, shall determine,
within the foregoing limitations, the
precise allocation of the underwriting discount and shall notify us of same at
least twenty-four (24) hours prior to the execution of the Underwriting
Agreement.
1. Authority and Compensation of Representative. We hereby authorize you, as our
Representative and on our behalf, (a) to enter into an agreement with the
Company substantially in the form attached hereto as Exhibit A ("Underwriting
Agreement"), but with such changes therein as in your judgment are not
materially adverse to the Underwriters, (b) to exercise all the authority and
discretion vested in the Underwriters and in you by the provisions of the
Underwriting Agreement, and (c) to take all such action as you, in your
discretion, may deem necessary or advisable in order to carry out the provisions
of the Underwriting Agreement and this Agreement and the sale and distribution
of the Securities, provided, however, that the time within which the
Registration Statement is required to become effective pursuant to the
Underwriting Agreement will not be extended more than forty-eight (48) hours
without the approval of a majority in interest of the Underwriters (including
you). We authorize you, in executing the Underwriting Agreement on our behalf,
to set forth in Schedule I of the Underwriting Agreement as our commitment to
purchase the number of Securities (which shall not be substantially in excess of
the number of Securities included in your invitation to participate unless we
have agreed otherwise) included in a wire, telex, or similar means of
communication transmitted by you to us at least twenty-four (24) hours prior to
the commencement of the offering as our finalized underwriting participation.
As our share of the compensation for your services hereunder, we will pay you,
and we authorize you to charge to our account, a sum equal to the Manager's
Concession.
2. Public Offering. A public offering of the Securities is to be made, as
herein provided, as soon after the Registration Statement relating thereto shall
become effective as in your judgment is advisable. The Securities shall be
initially offered to the public at the public offering price of $ ______ per
share and $ _____ per Redeemable Warrant. You will advise us by telegraph or
telephone when the Securities shall be released for offering. We authorize you
as Representative of the Underwriters, after the initial public offering, to
vary the public offering price, in your sole discretion, by reason of changes in
general market conditions or otherwise. The public offering price of the
Securities at any time in effect is herein called the "Offering Price."
We hereby agree to deliver all preliminary and final Prospectuses as
required for compliance with the provisions of Rule 15c2-8 under the Securities
Exchange Act of 1934 and Section 5(b) of the Securities Act of 1933. You have
heretofore delivered to us such preliminary Prospectuses as have been requested
by us, receipt of which is hereby acknowledged, and will deliver such final
Prospectuses as will be requested by us.
3. Offering to Dealers and Group Sales. We authorize you to reserve for
offering and sale, and on our behalf to sell, to institutions or other retail
purchasers (such sales being herein called "Group Sales") and to dealers
selected by you (such dealers being herein called the "Dealers") all or any part
of our Securities as you may determine. Such sales of Securities, if any, shall
be made (i) in the case of Group Sales, at the Offering Price, and (ii) in the
case of sales to Dealers, at -the Offering Price less the Dealer's Concession.
Any Group Sales shall be as nearly as practicable in proportion to the
underwriting obligations of the respective Underwriters. Any sales to Dealers
made for our account shall be as nearly as practicable in the ratio that the
Securities reserved for our account for offering to Dealers bears to the
aggregate of all Securities of all Underwriters, including you, so reserved. On
any Group Sales or sales to Dealers made by you on our behalf, we shall be
entitled to receive only the Underwriter's Concession.
2
You agree to notify us not less than twenty-four (24) hours prior to the
commencement of the public offering as to the number of Securities, if any,
which we may retain for direct sale. Prior to the termination of this Agreement,
you may reserve for offering and sale, as herein before provided, any Securities
remaining unsold theretofore retained by us and we may, with your consent,
retain any Securities remaining unsold theretofore reserved by you. Sales to
Dealers shall be made under a Selected Dealers Agreement, attached hereto as
Exhibit B and by this reference incorporated herein. We authorize you to
determine the form and manner of any communications with Dealers, and to make
such changes in the Selected Dealers Agreement, as you may deem appropriate. In
the event that there shall be any such agreements with Dealers, you are
authorized to act as managers thereunder, and we agree, in such event, to be
governed by the terms and conditions of such agreements. Each Underwriter agrees
that it will not offer any of the Securities for sale at a price below the
Offering Price or allow any concession therefrom, except as herein otherwise
provided. We, as to our Securities, may enter into agreements with Dealers, but
any Dealer's Reallowance Concession shall not exceed half of the Dealer's
Concession.
It is understood that any person to whom an offer may be made, as herein before
provided, shall be a member of the National Association of Securities Dealers,
Inc. ("NASD") or dealers or institutions with their principal place of business
located outside of the United States, its territories or possessions, and who
are not eligible for membership under Section 1 of the Bylaws of the NASD who
agree to make no sales within the United States, its territories or possessions,
or to persons who are nationals thereof, or residents therein, and, in making
sales, to comply with the NASD's Rules of Fair Practice.
We authorize you to determine the form and manner of any public advertisement of
the Securities.
Nothing in this Agreement contained shall be deemed to restrict our right,
subject to the provisions of this Section 3, to offer our Securities prior to
the effective date of the Registration Statement, provided, however, that any
such offer shall be made in compliance with any applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission thereunder and of any
applicable state securities laws.
4. Repurchases in the Open Market. Any Securities sold by us (otherwise than
through you) which, prior to the termination of this Agreement, or such earlier
date as you may determine, shall be contracted for or purchased in the open
market by you on behalf of any Underwriter or Underwriters, shall be repurchased
by us on demand at a price equal to the cost of such purchase plus commissions
and taxes, if any, on redelivery. Any Securities delivered on such repurchase
need not be the identical Securities originally sold by us. In lieu of delivery
of such Securities to us, you may (i) sell such Securities in any manner for our
account and charge us with the amount of any loss or expense, or credit us with
the amount of any profit, less any expense, resulting from such sale, or (ii)
charge our account . t with an amount not in excess of the concession to Dealers
on such Securities.
5. Delivery and Payment. We agree to deliver to you, at or before 9:00 A.M.,
New York, New York Time, on the Closing Date referred to in the Underwriting
Agreement, at your office, a certified or bank cashier's check payable to your
order for the offering price of the Securities less Dealer's Concession of the
Securities which we retained for direct sale by us, the proceeds of which check
shall be delivered to you, in the manner provided in the Underwriting Agreement,
to or for the account of the Company against delivery of certificates for such
Securities to you for our account. You are authorized to accept such delivery
and to give receipts therefor. You may advance funds for Securities which have
been sold or reserved for sale to retail purchasers or Dealers for our account.
If we fail (whether or not such failure shall constitute a default hereunder) to
deliver to you, or you fail to receive, our check and/or payment for sales made
by
3
you for our account for the Securities which we have agreed to purchase, you,
individually and not as Representative of the Underwriters, are authorized (but
shall not be obligated) to make payment, in the manner provided in the
Underwriting Agreement, to or for the account of the Company for such Securities
for our account, but any such payment by you shall not relieve us of any of our
obligations under the Underwriting Agreement or under this Agreement and we
agree to repay you on demand the amount so advanced for our account.
We also agree on demand to take up and pay for or to deliver to you
funds sufficient to pay for at cost any Securities of the Company purchased by
you for our account pursuant to the provisions of Section 9 hereof, and to
deliver to you on demand any Securities sold by you for our account, pursuant to
any provision of this Agreement.
We authorize you to deliver our Securities, and any other Securities
purchased by you for our account pursuant to the provisions of Section 9 hereof,
against sales made by you for our account pursuant to any provision of this
Agreement.
Upon receipt by you of payment for the Securities sold by us and/or through you
for our account, you will remit to us promptly an amount equal to the
Underwriter's Concession on such Securities. You agree to cause to be delivered
to us, as soon as practicable after the Closing Date referred to in the
Underwriting Agreement, such part of our Securities purchased on such Closing
Date as shall not have been sold or reserved for sale by your for our account.
In case any Securities reserved for sale in Group Sales or to Dealers shall not
be purchased and paid for in due course as contemplated hereby, we agree to
accept delivery when tendered by you of any Securities so reserved for our
account and not so purchased and pay you the offering price less the Dealer's
and Underwriter's Concessions.
6. Authority to Borrow. We authorize you to advance your funds for our
account (charging current interest rates) and to arrange loans for our account
for the purpose of carrying out this Agreement, and in connection therewith to
execute and deliver any notes or other instruments, and to hold, or pledge as
security therefor, all or any part of our Securities of the Company purchased
hereunder for our account. Any lending bank is hereby authorized to accept your
instructions as Representative in all matters relating to such loans. Any part
of our Securities held by you, may be delivered to us for carrying purposes, and
if so delivered, will be redelivered to you upon demand.
7. Allocation of Expense and Liability. We authorize you to charge our
account with, and we agree to pay (a) all transfer taxes on sales made by you
for our account, except as herein otherwise provided, and (b) our proportionate
share (based on our underwriting obligations) of all expenses in excess of those
reimbursed by the Company incurred by you in connection with the purchase,
carrying and distribution, or proposed purchase and distribution, of the
Securities and all other expenses arising under the terms of the Underwriting
Agreement or this Agreement. Your determination of all such expenses and your
allocation thereof shall be final and conclusive. Funds for our account at any
time in your hands as our Representative may be held in your general funds
without accountability for interest. As soon as practicable after the
termination of this Agreement, the net credit or debit balance in our account,
after proper charge and credit for all interim payments and receipts, shall be
paid to or paid by us, provided, however, that you, in your discretion, may
reserve from distribution an amount to cover possible additional expenses
chargeable to the several Underwriters.
8. Liability for Future Claims. Neither any statement by you, as
Representative of the Underwriters, of any credit or debit balance in our
account nor any reservation from distribution to cover possible additional
expenses relating to the Securities shall constitute any representation by you
as to the existence or nonexistence of possible unforeseen expenses or
liabilities of or charges against the several Underwriters. Notwithstanding the
distribution of any net credit
4
balance to us or the termination of this Agreement, or both, we shall be and
remain liable for, and will pay on demand, (a) our proportionate share (based on
our underwriting obligations) of all expenses and liabilities which may be
incurred by, or for the accounts of the Underwriters, including any liability
which may be incurred by the Underwriters or any of them, and (b) any transfer
taxes paid after such settlement on account of any sale or transfer for our
account.
9. Stabilization. We authorize you, until the termination of this Agreement,
(a) to make purchases and sales of the Securities, in the open market or
otherwise, for long or short account, and on such terms, and at such prices as
you in your discretion may deem desirable, (b) in arranging for sales of
Securities, to overallot, and (c) either before or after the termination of this
Agreement, to cover any short position incurred pursuant to this Section 9;
subject, however, to the applicable rules and regulations of the Securities and
Exchange Commission under the Securities Exchange Act of 1934. All such
purchases, sales and overallotments shall be made for the accounts of the
several Underwriters as nearly as practicable in proportion to their respective
underwriting obligations; provided, however, that our net position resulting
from such purchases and sales and overallotments shall not at any time exceed,
either for long or short account, fifteen percent (15%) of the number of
Securities agreed to be purchased by us.
If you engage in any stabilizing transactions as representative of the
underwriters, you shall promptly notify us of that fact and in like manner you
agree to promptly notify and file with us any stabilizing transaction in
accordance with the requirements of Rule 17a-2(d) under the Securities Exchange
Act of 1934.
We agree to advise you from time to time, upon request, until the settlement of
accounts hereunder, of the number of Securities at the time retained by us
unsold, and we will upon request sell to you, for the accounts of one or more of
the several Underwriters, such number of our unsold Securities as you may
designate, at the Offering Price less such amount, not in excess of the
concession to Dealers, as you may determine.
10. Open Market Transactions. We agree that, except with your consent and
except as herein provided upon advice from you, we will not make purchases or
sales on the open market or otherwise, or attempt to induce others to make
purchases or sales, either before or after the purchase of the Securities, and
prior to the completion (as defined in Rule 10b-6 of the Securities Exchange Act
of 1934) of our participation in the distribution, we will otherwise comply with
Rule 10b-6. Nothing in this Section 10 contained shall prohibit us from acting
as broker or agent in the execution of unsolicited orders of customers for the
purchase or sale of any securities of the Company.
11. Blue Sky. Prior to the initial offering by the Underwriters, you will
inform us as to the states under the respective securities or Blue Sky laws of
which it is believed that the Securities have been qualified or are exempt for
sale, but you do not assume any responsibility or obligation as to the accuracy
of such information or as to the right of any Underwriter or Dealer to sell the
Securities in any jurisdiction. We will not sell any Securities in any other
state or jurisdiction and we will not sell Securities in any state or
jurisdiction unless we are qualified or licensed to sell securities in such
state or jurisdiction. We authorize you, if you deem it unadvisable in arranging
sales of Securities for our account hereunder, to sell any of our Securities to
any particular Dealer, or other buyer, because of the securities or Blue Sky
laws of any jurisdiction, to sell our Securities to one or more other
Underwriters at the Offering Price less, in the case of a sale to any Dealer,
such amount, not in excess of the concession to Dealers thereon, as you may
determine. The transfer tax on any such sales among Underwriters shall be
treated as an expense and charged to the respective accounts of the several
Underwriters, in proportion to their respective underwriting obligations.
5
12. Default by Underwriters. Default by one or more Underwriters, in respect
to their obligations under the Underwriting Agreement shall not release us from
any of our obligations. In case of such default by one or more Underwriters, you
are authorized to increase, pro rata, with the other nondefaulting Underwriters,
the number of defaulted Securities which we shall be obligated to purchase from
the Company, provided, however, that the aggregate amount of all such increases
for all Underwriters shall not exceed ten percent (10%) of such Securities, and,
if the aggregate number of the Securities not taken up by such defaulting
Underwriters exceeds such ten percent (10%), you are further authorized, but
shall not be obligated, to arrange for the purchase by other persons, who may
include yourselves, of all or a portion of the Securities not taken up by such
Underwriters. In the event any such increases or arrangements are made, the
respective numbers of Securities to be purchased by the nondefaulting
Underwriters and by any such other person or persons shall be taken as the basis
for the underwriting obligations under this Agreement, but this shall not in any
way affect the liability of any defaulting Underwriters to the other
Underwriters for damages resulting from such default.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any Securities purchased
by your for their respective accounts, pursuant to Section 9 hereof, or to
deliver any such Securities sold or overallotted by you for their respective
accounts pursuant to any provisions of this Agreement, and to the extent that
arrangements shall not have been made by you for other persons to assume the
obligations of such defaulting Underwriter or Underwriters, each nondefaulting
Underwriter shall assume its proportionate share of the aforesaid obligations of
each such defaulting Underwriter without relieving any such Underwriter of its
liability therefor.
13. Termination of Agreement. Unless earlier terminated by you, the
provisions of Sections 2, 3, 4, 6, 9 and 10 of this Agreement shall, except as
otherwise provided therein, terminate thirty (30) full business days after the
effective date of the Registration Statement herein referred to, but may be
extended by you for an additional period or periods not exceeding thirty (30)
full business days in the aggregate. You may, however, terminate this Agreement,
or any provisions hereof, at any time by written or telegraphic notice to us.
14. General Position of the Representative. In taking action under this
Agreement, you shall act only as agent of the several Underwriters. Your
authority as Representative of the several Underwriters shall include the taking
of such action as you may deem advisable in respect of all matters pertaining to
any and all offers and sales of the Securities, including the right to make any
modifications which you consider necessary or desirable in the arrangements with
Dealers or others. You shall be under no liability for or in respect of the
value of the Securities or the validity or the form thereof, the Registration
Statement, the Prospectus, the Underwriting Agreement, or other instruments
executed by the Company or others of any agreement on its or their part; nor
shall you, as such Representative or otherwise, be liable under any of the
provisions hereof, or for any matters connected herewith, except for want of
good faith, and except for any liability arising under the Securities Act of
1933; and no obligation not expressly assumed by you as such Representative
herein shall be implied from this Agreement. In representing the Underwriters
hereunder, you shall act as the representative of each of them respectively.
Nothing herein contained shall constitute the several Underwriters partners with
you or with each other, or render any Underwriter liable for the commitments of
any other Underwriter, except as otherwise provided in Section 12 hereof. The
commitments and liabilities of each of the several Underwriters are several in
accordance with their respective underwriting obligations and are not joint.
15. Acknowledgment of Registration Statement, etc. We hereby confirm that we
have examined the Registration Statement (including all amendments thereto)
relating to the Securities as heretofore filed with the Securities and Exchange
Commission, that we are familiar with the
6
amendment(s) to the Registration Statement and the final form of Prospectus
proposed to be filed, that we are willing to accept the responsibilities of an
underwriter thereunder, and that we are willing to proceed as therein
contemplated. We further confirm that the statements made under the heading
"Underwriting" in such proposed final form of Prospectus are correct and we
authorize you so to advise the Company on our behalf. We understand that the
aforementioned documents are subject to further change and that we will be
supplied with copies of any amendment or amendments to the Registration
Statement and of any amended Prospectus promptly, if and when received by you,
but the making of such changes and amendments shall not release us or affect our
obligations hereunder or under the Underwriting Agreement.
16. Indemnification. Each Underwriter, including you, agrees to indemnify
and hold harmless each other Underwriter and each person who controls any other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, as
amended, to the extent of their several commitments under the Underwriting
Agreement and upon the terms that such Underwriter agrees to indemnify and hold
harmless the Company as set forth in Section 7 of the Underwriting Agreement.
The Agreement contained in this Section 16 shall survive any termination of this
Agreement Among Underwriters.
17. Capital Requirements. We confirm that our ratio of aggregate
indebtedness to net capital is such that we may, in accordance with and pursuant
to Rule 15c-1, promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, agree to purchase the number of Securities we
may be obligated to purchase under any provision of the Underwriting Agreement
or this Agreement.
18. Miscellaneous. We have transmitted herewith a completed Underwriters'
Questionnaire on the form thereof supplied by you. Any notice hereunder from you
to us or from us to you shall be deemed to have been duly give if sent by
registered mail, telegram, teletype, telex, telecopier, graphic scan, or other
written form of telecommunication to us at our address as set forth in the
Underwriting Agreement, or to you at the address set forth on the first page of
this Agreement.
You hereby confirm that you are registered as a broker-dealer with the
United States Securities and Exchange Commission and that you are a member of
the NASD and we confirm that we are either a member of the NASD or a foreign
broker-dealer not eligible for membership under Section I of the Bylaws of the
NASD, who agrees to make no sales within the United States, its territories or
possessions, or to persons who are nationals thereof or residents therein, and,
in making sales, to comply with the requirements of the NASD's Interpretation
with Respect to Free Riding and Withholding, and with Sections 8, 24, and 25 to
the extent applicable to foreign nonmember brokers or dealers, and Section 36 of
the NASD's Rules of Fair Practice.
We will comply with all applicable federal laws, the laws of the states or other
jurisdictions concerned and the Rules and Regulations of the NASD, including,
but not limited to, Section 24 of the Rules of Fair Practice.
This instrument may be signed by the Underwriters in various counterparts which
together shall constitute one and the same agreement among all the Underwriters
and shall become effective as between us at such time as you shall have
confirmed same by returning an executed copy to us, and thereafter, as to us and
the other Underwriters, upon execution by them of counterparts which are
confirmed by you. In no event, however, shall we have any liability under this
Agreement if the Underwriting Agreement is not executed.
7
Please confirm that the foregoing correctly states the understanding between us
by signing and returning to us a counterpart hereof.
Very truly yours,
Attorney-in-Fact
for the several Underwriters
named in Schedule I
to the Underwriting Agreement
Confirmed as of the date first above written.
Schneider Securities,Inc.
As Representative
By
President
8
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PERARDUA CORPORATION
ARTICLE I
NAME
----
The name of the Corporation is PerArdua Corporation.
ARTICLE II
REGISTERED OFFICE
-----------------
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
PURPOSES
--------
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware (the "DGCL").
ARTICLE IV
CAPITAL STOCK
-------------
Section 1. Number of Shares.
The total number of shares of capital stock which the Corporation shall
have the authority to issue is 26,000,000 shares, of which (i) 1,000,000 shares
shall be Preferred Stock, par value $.01 per share (the "Preferred Stock") and
(ii) 25,000,000 shares shall be common stock, par value $.01 per share (the
"Common Stock"). As set forth in this Article IV and subject to the terms of any
series of Preferred Stock (provided that any shares of such series are issued
and outstanding), the Board of Directors or any authorized committee thereof is
authorized from time to time to establish and designate one or more series of
Preferred Stock, to fix and determine the variations in the relative rights and
preferences as between the different series of Preferred Stock in the manner
hereinafter set forth in this Article IV, and to
fix or alter the number of shares comprising any such series and the designation
thereof to the extent permitted by law.
Except as provided to the contrary in the provisions establishing a
class of stock or a series of Preferred Stock, the number of authorized shares
of such class or series may be increased or decreased (but not below the number
of shares thereof then outstanding) by the affirmative vote of a majority of the
stock of the Corporation entitled to vote, voting as a single class.
Section 2. General.
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, Sections 3 and
4 of this Article IV.
Section 3. Common Stock.
Subject to all of the rights, powers and preferences of the Preferred
Stock, and except as provided by law or in this Article IV (or in any
certificate of designation of any series of Preferred Stock, provided that any
shares of such series are issued and outstanding) or by the Board of Directors
or any authorized committee thereof pursuant to this Article IV:
(a) the holders of the Common Stock shall have the exclusive
right to vote for the election of Directors and on all other matters requiring
stockholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set apart for
payment upon the Common Stock out of any assets or funds of the Corporation
legally available for the payment of dividends, but only when and as directed by
the Board of Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with their
respective rights and interests.
Section 4. Preferred Stock.
Subject to any limitations prescribed by law or by the terms of any
series of Preferred Stock (provided that any shares of such series are issued
and outstanding), the Board of Directors or any authorized committee thereof is
expressly authorized to provide for the issuance of the shares of Preferred
Stock in one or more series of such stock, and by filing a certificate pursuant
to applicable law of the State of Delaware, to establish or change from time to
time the number of shares to be included in each such series, and to fix the
designations, powers, preferences and the relative, participating, optional or
other special
2
rights of the shares of each series and any qualifications, limitations and
restrictions thereof. Any action by the Board of Directors or any authorized
committee thereof under this Section 4 shall require the affirmative vote of a
majority of the Directors then in office or a majority of the members of such
committee. The Board of Directors or any authorized committee thereof shall have
the right to determine to fix one or more of the following with respect to each
series of Preferred Stock to the extent permitted by law:
(a) The distinctive serial designation and the number of
shares constituting such series;
(b) The dividend rates or the amount of dividends to be paid
on the shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares
of such series;
(d) Whether the shares of such series shall be redeemable and,
if so, the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
(e) The amount or amounts payable upon the shares of such
series and any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the Corporation
and, if so convertible or exchangeable, the conversion price or prices, or the
rate or rates of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any terms and conditions of such
conversion or exchange;
(h) The price or other consideration for which the shares of
such series shall be issued;
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of Preferred
Stock (or series thereof) and
3
whether such shares may be reissued as shares of the same or any other class or
series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
ARTICLE V
STOCKHOLDER ACTION
------------------
Any action required or permitted to be taken by the stockholders of the
Corporation at any annual or special meeting of stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders and
may not be taken or effected by a written consent of stockholders in lieu
thereof.
ARTICLE VI
DIRECTORS
---------
Section 1. General.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, except as otherwise provided
herein or required by law.
Section 2. Election of Directors.
Election of Directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
Section 3. Number and Terms of Directors.
The number of Directors of the Corporation shall be fixed by resolution
duly adopted from time to time by the Board of Directors. The Directors, other
than those who may be elected by the holders of any series of Undesignated
Preferred Stock of the Corporation, shall be classified, with respect to the
term for which they severally hold office, into three classes as nearly equal in
number as possible. The initial Class I Directors of the Corporation shall be
Emanuela I. Charlton, Ph.D. and Thomas Quinn; the initial Class II Directors of
the Corporation shall be Samuel P. Sears, Jr. and William Lewin, M.D.; and the
initial Class III Director of the Corporation shall be Francis E. O'Donnell,
Jr., M.D. The initial Class I Directors shall serve for a term expiring at the
annual meeting of stockholders to be held in 1997, the initial Class II
Directors shall serve for a term expiring at the annual meeting of stockholders
to be held in 1998; and the initial Class III Director shall serve for a term
expiring at the annual meeting of stockholders to be held in 1999. At each
annual meeting of stockholders, the successor or successors of the class of
Directors whose term expires at that meeting shall be elected by a plurality of
the votes cast at such meeting and shall hold office for a term
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expiring at the annual meeting of stockholders held in the third year following
the year of their election. The Directors elected to each class shall hold
office until their successors are duly elected and qualified or until their
earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate of Incorporation, the holders of any one or more
series of Undesignated Preferred Stock shall have the right, voting separately
as a series or together with holders of other such series, to elect Directors at
an annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be governed
by the terms of this Certificate of Incorporation and any certificate of
designations applicable thereto, and such Directors so elected shall not be
divided into classes pursuant to this Section 3.
During any period when the holders of any series of Preferred Stock
have the right to elect additional Directors as provided for or fixed pursuant
to the provisions of Article IV hereof, then upon commencement and for the
duration of the period during which said right continues: (i) the then otherwise
total authorized number of Directors of the Corporation shall automatically be
increased by such specified number of Directors, and the holders of such
Preferred Stock shall be entitled to elect the additional Directors so provided
for or fixed pursuant to said provisions, and (ii) each such additional Director
shall serve until such Director's successor shall have been duly elected and
qualified, or until such Director's right to hold such office terminates
pursuant to said provisions, whichever occurs earlier, subject to such
Director's earlier death, disqualification, resignation or removal. Except as
otherwise provided by the Board in the resolution or resolutions establishing
such series, whenever the holders of any series of Preferred Stock having such
right to elect additional Directors are divested of such right pursuant to the
provisions of such stock, the terms of office of all such additional Directors
elected by the holders of such stock, or elected to fill any vacancies resulting
from the death, resignation, disqualification or removal of such additional
Directors, shall forthwith terminate and the total and authorized number of
Directors of the Corporation shall be reduced accordingly.
Section 4. Removal.
Subject to the rights, if any, of any series of Preferred Stock to
elect Directors and to remove any Director whom the holders of any such stock
have the right to elect, any Director (including persons elected by Directors to
fill vacancies in the Board of Directors) may be removed from office (i) only
with cause and (ii) only by the affirmative vote of at least two-thirds of the
total votes which would be eligible to be cast by stockholders in the election
of such Director. At least 30 days prior to any meeting of stockholders at which
it is proposed that any Director be removed from office, written notice of such
proposed removal shall be sent to the Director whose removal will be considered
at the meeting. For purposes of this
5
Certificate of Incorporation, "cause," with respect to the removal of any
Director shall mean only (i) conviction of a felony, (ii) declaration of unsound
mind by order of court, (iii) gross dereliction of duty, (iv) commission of any
action involving moral turpitude, or (v) commission of an action which
constitutes intentional misconduct or a knowing violation of law if such action
in either event results both in an improper substantial personal benefit and
material injury to the Corporation.
ARTICLE VII
INDEMNIFICATION
---------------
Section 1. Definitions. For purposes of this Article:
(a) "Officer" means any person who serves or has served the
Corporation (i) as a director on the Board of Directors of the Corporation, or
(ii) as an officer appointed by the Board of Directors of the Corporation;
(b) "Non-Officer Employee" means any person who serves or has served
as an employee of the Corporation, but who is not or was not an Officer;
(c) "Proceeding" means any threatened, pending, or completed action,
suit, arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative;
(d) "Expenses" means all reasonable attorney's fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review, organization,
imaging and computerization, telephone charges, postage, delivery service fees,
and other disbursements, costs or expenses of the type customarily incurred in
connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, settling or otherwise
participating in, a Proceeding;
(e) "Corporate Status" describes the status of a person who (i) in the
case of an Officer, is or was a director, officer, employee or agent of the
Corporation or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which such Officer is or was serving
at the written request of the Corporation, or (ii) in the case of a Non-Officer
Employee, is or was an employee of the Corporation or a director, officer,
employee or agent of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which such Non-Officer Employee is or
was serving at the written request of the Corporation; and
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(f) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a director of the
Corporation who is not and was not a party to such Proceeding.
Section 2. Indemnification of Officers. Subject to the operation of
Section 4 of this Article VII, each Officer shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter be
amended (but in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
such law permitted the Corporation to provide prior to such amendment) against
any and all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Officer or on such Officer's behalf in
connection with any threatened, pending or completed Proceeding or any claim,
issue or matter therein, which such Officer is, or is threatened to be made, a
party to or participant in by reason of such Officer's Corporate Status, if such
Officer acted in good faith and in a manner such Officer reasonably believed to
be in or not opposed to the best interests of the Corporation and, with respect
to any criminal proceeding, has no reasonable cause to believe his or her
conduct was unlawful. The rights of indemnification provided by this Section 2
shall continue as to an Officer after he or she has ceased to be an Officer and
shall inure to the benefit of his or her heirs, executors, administrators and
personal representatives. Notwithstanding the foregoing, the Corporation shall
indemnify any Officer seeking indemnification in connection with a Proceeding
initiated by such Officer only if such Proceeding was authorized by the Board of
Directors of the Corporation.
Section 3. Indemnification of Non-Officer Employees. Subject to the
operation of Section 4 of this Article VII, each Non-Officer Employee may, in
the discretion of the Board of Directors of the Corporation, be indemnified by
the Corporation to the fullest extent authorized by the General Corporation Law
of the State of Delaware, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any or all
Expenses, judgments, penalties, fines and amounts reasonably paid in settlement
that are incurred by such Non-Officer Employee or on such Non-Officer Employee's
behalf in connection with any threatened, pending or completed Proceeding, or
any claim, issue or matter therein which such Non-Officer Employee is, or is
threatened to be made, a party to or participant in by reason of such
non-officer Employee's Corporate Status, if such Non-Officer Employee acted in
good faith and in a manner such Non-Officer Employee reasonably believed to be
in or not opposed to the best interests of the Corporation, and with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The rights of indemnification provided by this Section 3 shall
continue as to a Non-Officer Employee after he or she has ceased to be a
Non-Officer Employee and shall inure to the benefit of his or her heirs,
personal representatives, executors and administrators. Notwithstanding the
foregoing, the Corporation may indemnify any Non-Officer Employee seeking
indemnification in connection with a Proceeding initiated by such Non-Officer
7
Employee only if such Proceeding was authorized by the Board of Directors of the
Corporation.
Section 4. Good Faith. Unless ordered by a court, no indemnification
shall be provided pursuant to this Article VII to an Officer or to a Non-Officer
Employee unless a determination shall have been made that such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal Proceeding, such person had no reasonable cause to believe his or her
conduct was unlawful. Such determination shall be made by (a) a majority vote of
the Disinterested Directors, even though less than a quorum of the Board of
Directors, (b) if there are no such Disinterested Directors, or if a majority of
Disinterested Directors so direct by independent legal counsel in a written
opinion, or (c) by the stockholders of the Corporation.
Section 5. Advancement of Expenses to Officers Prior to Final
Disposition. The Corporation shall advance all Expenses incurred by or on behalf
of any Officer in connection with any Proceeding in which such Officer is
involved by reason of such Officer's Corporate Status within ten days after the
receipt by the Corporation of a statement or statements from such Officer
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by such Officer and shall be preceded
or accompanied by an undertaking by or on behalf of such Officer to repay any
Expenses so advanced if it shall ultimately be determined that such Officer is
not entitled to be indemnified against such Expenses.
Section 6. Advancement of Expenses to Non-Officer Employees Prior to
Final Disposition. The Corporation may, in the discretion of the Board of
Directors of the Corporation, advance any or all Expenses incurred by or on
behalf of any Non-Officer Employee in connection with any Proceeding in which
such Non-Officer Employee is involved by reason of such Non-Officer Employee's
Corporate Status upon the receipt by the Corporation of a statement or
statements from such Non-Officer Employee requesting such advance or advances
from time to time, whether prior to or after disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
such Non-Officer Employee and shall be preceded or accompanied by an undertaking
by or on behalf of such Non-Officer Employee to repay any Expenses so advanced
if it shall ultimately be determined that such Non-Officer Employee is not
entitled to be indemnified against such Expenses.
Section 7. Contractual Nature of Rights. The foregoing provisions of
this Article VII shall be deemed to be a contract between the Corporation and
each Officer and Non-Officer Employee who serves in such capacity at any time
while this Article VII is in effect, and any repeal or modification thereof
shall not affect any rights or obligations then existing with respect to any
state of facts then or heretofore existing or any Proceeding heretofore or
thereafter brought based in whole or in part upon any such state of facts. If a
claim for indemnification or advancement of Expenses hereunder by an Officer or
Non-Officer
8
Employee is not paid in full by the Corporation within (a) 60 days after the
Corporation's receipt of a written claim for indemnification, or (b) 10 days
after the Corporation's receipt of documentation of Expenses and the required
undertaking, such Officer or Non-Officer Employee may at any time thereafter
bring suit against the Corporation or recover the unpaid amount of the claim,
and if successful in whole or in part, such Officer or Non-Officer Employee
shall also be entitled to be paid the expenses of prosecuting such claim. The
failure of the Corporation (including its Board of Directors or any committee
thereof, independent legal counsel, or stockholders) to make a determination
concerning the permissibility of such indemnification or advancement of Expenses
under this Article VII shall not be a defense to the action and shall not create
a presumption that such indemnification or advancement is not permissible.
Section 8. Non-Exclusivity of Rights. The rights to indemnification and
advancement of Expenses set forth in this Article VII shall not be exclusive of
any other right which any Officer or Non-Officer Employee may have or hereafter
acquire under any statute, provision of this Certificate of Incorporation,
agreement, vote of stockholders or Disinterested Directors or otherwise.
Section 9. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Officer or Non-Officer Employee against any
liability of any character asserted against or incurred by the Corporation or
any such Officer or Non-Officer Employee or arising out of any such person's
Corporate Status, whether or not the Corporation would have the power to
indemnify such person against such liability under the General Corporation Law
of the State of Delaware or the provisions of this Article VII.
ARTICLE VIII
LIMITATION OF LIABILITY
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the Director derived an improper personal benefit. If the
DGCL is amended after the effective date of this Certificate of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended.
Any repeal or modification of this Article VIII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or
9
omissions occurring before such repeal or modification of a person serving as a
Director at the time of such repeal or modification.
ARTICLE IX
AMENDMENT OF BYLAWS
-------------------
Section 1. Amendment by Directors
In furtherance and not in limitation of the powers conferred by statute
and subject to the terms of any series of Preferred Stock (provided that any
shares of such series are issued and outstanding), the Board of Directors of the
Corporation is expressly authorized to make, alter or repeal the Bylaws of the
Corporation.
Section 2. Amendment by Stockholders
Subject to the terms of any series of Preferred Stock (provided that
any shares of such series are issued and outstanding), the Bylaws of the
Corporation may be amended or repealed at any annual meeting of stockholders, or
special meeting of stockholders called for such purpose, by the affirmative vote
of at least two-thirds of the total votes eligible to be cast on such amendment
or repeal by holders of voting stock, voting together as a single class;
provided, however, that, subject to the terms of any series of Preferred Stock
(provided that any shares of such series are issued and outstanding), if the
Board of Directors recommends that stockholders approve such amendment or repeal
at such meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a single
class.
ARTICLE X
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
Subject to the terms of any series of Preferred Stock (provided that
any shares of such series are issued and outstanding), the Corporation reserves
the right to amend or repeal this Certificate of Incorporation in the manner now
or hereafter prescribed by statute and this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation. No amendment or repeal of this Certificate of Incorporation shall
be made unless the same is first approved by the Board of Directors pursuant to
a resolution adopted by the Board of Directors in accordance with Section 242 of
the DGCL, and, except as otherwise provided by law, thereafter approved by the
stockholders. Subject to the terms of any series of Preferred Stock (provided
that any shares of such series are issued and outstanding), whenever any vote of
the holders of voting stock is required, and in addition to any other vote of
holders of voting stock that is required by this Certificate of Incorporation or
by law, the affirmative vote of a majority of the total votes eligible to be
cast by holders of voting stock with respect to such amendment or repeal, voting
together as a single class, at a duly constituted meeting of stockholders called
expressly for such purpose shall be required to amend or repeal any provisions
of this Certificate of Incorporation; provided, however, that, subject to the
terms of any series of Preferred Stock (provided that any shares of such series
are issued and outstanding), the affirmative vote of not less than 80% of the
total votes eligible to be cast by holders of
10
voting stock, voting together a single class, shall be required to amend or
repeal any of the provisions of Article X of this Certificate of Incorporation.
The name of the Incorporator of the Corporation is J. Benjamin English,
Esquire and his business address is 707 East Main Street, 11th Floor, in the
City of Richmond, Virginia 23219.
/s/ J. Benjamin English
--------------------------------------
Incorporator
J. Benjamin English
EXHIBIT 3.2
BYLAWS
OF
PERARDUA CORPORATION
ARTICLE I
---------
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of stockholders shall be
held at the hour, date and place within or without the United States which is
fixed by the majority of the Board of Directors, the Chairman of the Board, if
one is elected, or the President, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no annual meeting has
been held for a period of thirteen months after the Corporation's last annual
meeting of stockholders, a special meeting in lieu thereof may be held, and such
special meeting shall have, for the purposes of these Bylaws or otherwise, all
the force and effect of an annual meeting. Any and all references hereafter in
these Bylaws to an annual meeting or annual meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.
SECTION 2. Matters to be Considered at Annual Meetings. At any annual
meeting of stockholders or any special meeting in lieu of annual meeting of
stockholders (the "Annual Meeting"), only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting by, or at the direction of, the
Board of Directors, or (c) otherwise properly brought before the meeting by any
holder of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
Section 2.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section 2 to the
Secretary of the Corporation and (ii) be present at such meeting, either in
person or by a representative. For the first Annual Meeting following the
initial public offering of common stock of the Corporation, a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the later of (A) the 75th day prior to the scheduled date of such
Annual Meeting or (B) the 15th day following the day on which public
announcement of
the date of such of such Annual Meeting is first made by the Corporation. For
all subsequent Annual Meetings, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not less than 75 days nor more than 120 days prior to the
anniversary date of the immediately preceding Annual Meeting (the "Anniversary
Date"); provided, however, that in the event the Annual Meeting is scheduled to
be held on a date more than 30 days before the Anniversary Date or more than 60
days after the Anniversary Date, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (A) the
75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day
following the day on which public announcement of the date of such Annual
Meeting is first made by the Corporation.
For purposes of these Bylaws, "public announcement" shall mean: (i)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (ii) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (iii) a letter or report sent to stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Secretary shall set forth as to each
matter proposed to be brought before an Annual Meeting: (i) a brief description
of the business the stockholder desires to bring before such Annual Meeting and
the reasons for conducting such business at such Annual Meeting, (ii) the name
and address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the stockholder proposing such
business, (iv) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation registered in such stockholder's name on such
books, and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (v) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other stockholders, and (vi) any material
interest of the stockholder proposing to bring such business before such meeting
(or any other stockholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof determines
that any stockholder proposal was not made in a timely fashion in accordance
with the provisions of this Section 2 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2 in any material respect, such proposal shall not be presented for
action at the Annual Meeting in question. If neither the Board of Directors nor
such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the Annual
Meeting shall determine whether the stockholder proposal was made in accordance
with the terms of this Section 2. If the presiding officer determines that any
stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2 or that the information provided in a stockholder's
notice does not satisfy the information requirements of this Section 2 in any
2
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If the Board of Directors, a designated committee thereof
or the presiding officer determines that a stockholder proposal was made in
accordance with the requirements of this Section 2, the presiding officer shall
so declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this Bylaw, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the rules and regulations
thereunder with respect to the matters set forth in this Bylaw, and nothing in
this Bylaw shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
SECTION 3. Special Meetings. Except as otherwise required by law and
subject to the rights, if any, of the holders of any series of Preferred Stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority of the Directors then in office.
SECTION 4. Matters to be Considered at Special Meetings. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. Notice of Meetings; Adjournments. A written notice of all
Annual Meetings stating the hour, date and place of such Annual Meetings shall
be given by the Secretary or an Assistant Secretary (or other person authorized
by these Bylaws or by law) not less than 10 days nor more than 60 days before
the Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Certificate of Incorporation or under these
Bylaws, is entitled to such notice, by delivering such notice to him or by
mailing it, postage prepaid, addressed to such stockholder at the address of
such stockholder as it appears on the Corporation's stock transfer books. Such
notice shall be deemed to be delivered when hand delivered to such address or
deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the
same manner as provided for Annual Meetings, except that the written notice of
all special meetings shall state the purpose or purposes for which the meeting
has been called.
Notice of an Annual Meeting or special meeting of stockholders need not
be given to a stockholder if a written waiver of notice is signed before or
after such meeting by such stockholder or if such stockholder attends such
meeting, unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
was not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any Annual Meeting or special meeting of stockholders need
be specified in any written waiver of notice.
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The Board of Directors may postpone and reschedule any previously
scheduled Annual Meeting or special meeting of stockholders and any record date
with respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
Article I or Section 3 of Article II hereof or otherwise. In no event shall the
public announcement of an adjournment, postponement or rescheduling of any
previously scheduled meeting of stockholders commence a new time period for the
giving of a stockholder's notice under Section 2 of Article I and Section 3 of
Article II of these Bylaws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
stockholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any Annual Meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Corporation's Certificate of Incorporation or these Bylaws, is
entitled to such notice.
SECTION 6. Quorum. The holders of shares of voting stock representing a
majority of the voting power of the outstanding shares of voting stock issued,
outstanding and entitled to vote at a meeting of stockholders, represented in
person or by proxy at such meeting, shall constitute a quorum; but if less than
a quorum is present at a meeting, the holders of voting stock representing a
majority of the voting power present at the meeting or the presiding officer may
adjourn the meeting from time to time, and the meeting may be held as adjourned
without further notice, except as provided in Section 5 of this Article I. At
such adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The stockholders present at a duly constituted meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 7. Voting and Proxies. Stockholders shall have one vote for
each share of stock entitled to vote owned by them of record according to the
books of the Corporation, unless otherwise provided by law or by the
Corporation's Certificate of Incorporation. Stockholders may vote either in
person or by written proxy, but no proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period.
Proxies shall be filed with the Secretary of the meeting before being voted.
Except as otherwise limited therein or as otherwise provided by law, proxies
shall entitle the persons authorized thereby to vote at any adjournment of such
meeting, but they shall not be valid after final adjournment of such meeting. A
proxy with respect to stock held in the name of two or more persons shall be
valid if executed by or on behalf of any one of them unless at or prior to
4
the exercise of the proxy the Corporation receives a specific written notice to
the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a stockholder shall be deemed valid, and the burden of proving
invalidity shall rest on the challenger.
SECTION 8. Action at Meeting. When a quorum is present, any matter
before any meeting of stockholders shall be decided by the vote of a majority of
the voting power of shares of voting stock, present in person or represented by
proxy at such meeting and entitled to vote on such matter, except where a larger
vote is required by law, by the Certificate of Incorporation or by these Bylaws.
Any election by stockholders shall be determined by a plurality of the votes
cast, except where a larger vote is required by law, by the Certificate of
Incorporation or by these Bylaws. The Corporation shall not directly or
indirectly vote any shares of its own stock; provided, however, that the
Corporation may vote shares which it holds in a fiduciary capacity to the extent
permitted by law.
SECTION 9. Stockholder Lists. The Secretary or an Assistant Secretary
(or the Corporation's transfer agent or other person authorized by these Bylaws
or by law) shall prepare and make, at least 10 days before every Annual Meeting
or special meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 10. Presiding Officer. The Chairman of the Board, if one is
elected, or if not elected or in his absence, the President, shall preside at
all Annual Meetings or special meetings of stockholders and shall have the
power, among other things, to adjourn such meeting at any time and from time to
time, subject to Sections 5 and 6 of this Article I. The order of business and
all other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
SECTION 11. Voting Procedures and Inspectors of Elections. The
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the General Corporation Law of the State of Delaware, as amended
from time to time, including the counting of all votes and ballots. The
inspectors may appoint
5
or retain other persons or entities to assist the inspectors in the performance
of the duties of the inspectors. The presiding officer may review all
determinations made by the inspectors, and in so doing the presiding officer
shall be entitled to exercise his or her sole judgment and discretion and he or
she shall not be bound by any determinations made by the inspector(s). All
determinations by the inspector(s) and, if applicable, the presiding officer
shall be subject to further review by any court of competent jurisdiction.
ARTICLE II
----------
Directors
---------
SECTION 1. Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided by the Certificate of Incorporation or required by law.
SECTION 2. Number and Terms. The number and terms of Directors of the
Corporation shall be in accordance with the Corporation's Certificate of
Incorporation.
SECTION 3. Director Nominations. Nominations of candidates for election
as directors of the Corporation at any Annual Meeting may be made only (a) by,
or at the direction of, a majority of the Board of Directors or (b) by any
holder of record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote at such Annual Meeting who complies with the timing, informational and
other requirements set forth in this Section 3. Any stockholder who seeks to
make such a nomination or his representative must be present in person at the
Annual Meeting. Only persons nominated in accordance with the procedures set
forth in this Section 3 shall be eligible for election as directors at an Annual
Meeting.
Nominations, other than those made by, or at the direction of, the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 3. For the first
Annual Meeting following the initial public offering of common stock of the
Corporation, a stockholder's notice shall be timely if delivered to, or mailed
to and received by, the Corporation at its principal executive office not later
than the close of business on the later of (A) the 75th day prior to the
scheduled date of such Annual Meeting or (B) the 15th day following the day on
which public announcement of the date of such Annual Meeting is first made by
the Corporation. For all subsequent Annual Meetings, a stockholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not less than 75 days nor more than 120 days
prior to the Anniversary Date; provided, however, that in the event the Annual
Meeting is scheduled to be held on a date more than 30 days before the
Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed and received by,
the Corporation at its principal executive office not later than the close of
business on the later of (i) the 75th day prior to the scheduled date of such
Annual Meeting or
6
(ii) the 15th day following the day on which public announcement of the date of
such Annual Meeting is first made by the Corporation.
A stockholder's notice to the Secretary shall set forth as to each
person whom the stockholder proposes to nominate for election or re-election as
a director: (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation's capital stock which are
beneficially owned by such person on the date of such stockholder notice, and
(iv) the consent of each nominee to serve as a director if elected. A
stockholder's notice to the Secretary shall further set forth as to the
stockholder giving such notice: (i) the name and address, as they appear on the
Corporation's stock transfer books, of such stockholder and of the beneficial
owners (if any) of the Corporation's capital stock registered in such
stockholder's name and the name and address of other stockholders known by such
stockholder to be supporting such nominee(s), (ii) the class and number of
shares of the Corporation's capital stock which are held of record, beneficially
owned or represented by proxy by such stockholder and by any other stockholders
known by such stockholder to be supporting such nominee(s) on the record date
for the Annual Meeting in question (if such date shall then have been made
publicly available) and on the date of such stockholder's notice, and (iii) a
description of all arrangements or understandings between such stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder.
If the Board of Directors or a designated committee thereof determines
that any stockholder nomination was not timely made in accordance with the terms
of this Section 3 or that the information provided in a stockholder's notice
does not satisfy the informational requirements of this Section 3 in any
material respect, then such nomination shall not be considered at the Annual
Meeting in question. If neither the Board of Directors nor such committee makes
a determination as to whether a nomination was made in accordance with the
provisions of this Section 3, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any stockholder nomination was not timely
made in accordance with the terms of this Section 3 or that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Section 3 in any material respect, then such nomination
shall not be considered at the Annual Meeting in question. If the Board of
Directors, a designated committee thereof or the presiding officer determines
that a nomination was made in accordance with the terms of this Section 3, the
presiding officer shall so declare at the Annual Meeting and ballots shall be
provided for use at the meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second sentence of the
second paragraph of this Section 3, in the event that the number of directors to
be elected to the Board of Directors of the Corporation is increased and there
is no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least 75
days prior to the Anniversary Date, a stockholder's notice required by this
Section 3 shall also be considered timely, but only with respect to nominees
7
for any new positions created by such increase, if such notice shall be
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the 15th day following
the day on which such public announcement is first made by the Corporation.
No person shall be elected by the stockholders as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of Directors at the annual meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such annual meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as Directors at
the annual meeting in accordance with the procedures set forth in this Section
shall be provided for use at the annual meeting.
SECTION 4. Qualification. No Director need be a stockholder of the
Corporation.
SECTION 5. Vacancies. Except as otherwise fixed pursuant to the
provisions of Article IV of the Certificate of Incorporation of the Corporation
relating to the rights of the holders of any series of preferred stock to elect
Directors, any and all vacancies in the Board of Directors, however occurring,
including, without limitation, by reason of an increase in size of the Board of
Directors, or the death, resignation, disqualification or removal of a Director,
shall be filled solely by the affirmative vote of a majority of the remaining
Directors then in office, even if less than a quorum of the Board of Directors.
Any Director appointed in accordance with the preceding sentence shall hold
office for the remainder of the full term of the class of Directors in which the
new directorship was created or the vacancy occurred and until such Director's
successor shall have been duly elected and qualified or until his or her earlier
resignation or removal. When the number of Directors is increased or decreased,
the Board of Directors shall determine the class or classes to which the
increased or decreased number of Directors shall be apportioned; provided,
however, that no decrease in the number of Directors shall shorten the term of
any incumbent Director. In the event of a vacancy in the Board of Directors, the
remaining Directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
SECTION 6. Removal. Directors may be removed from office in the manner
provided in the Corporation's Certificate of Incorporation.
SECTION 7. Resignation. A Director may resign at any time by giving
written notice to the Chairman of the Board, if one is elected, the President or
the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
SECTION 8. Regular Meetings. The regular annual meeting of the Board of
Directors shall be held, without notice other than this Bylaw, on the same date
and at the same place as the Annual Meeting following the close of such meeting
of stockholders. Other regular meetings of the Board of Directors may be held at
such hour, date and place as the Board of Directors may by resolution from time
to time determine without notice other than such resolution.
8
SECTION 9. Special Meetings. Special meetings of the Board of Directors
may be called, orally or in writing, by or at the request of a majority of the
Directors, the Chairman of the Board, if one is elected, or the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
SECTION 10. Notice of Meetings. Notice of the hour, date and place of
all special meetings of the Board of Directors shall be given to each Director
by the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the President or such other officer designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting of
the Board of Directors shall be given to each Director in person, by telephone,
or by telex, telecopy, telegram, or other written form of electronic
communication, sent to his business or home address, at least 24 hours in
advance of the meeting, or by written notice mailed to his business or home
address, at least 48 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
Director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if telexed or telecopied, or when
delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting adjourned for less than 30 days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such adjournment is taken of the hour, date and place to which the
meeting is adjourned.
A written waiver of notice signed before or after a meeting by a
Director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a Director at a meeting
shall constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because such meeting is not lawfully
called or convened. Except as otherwise required by law, by the Certificate of
Incorporation of the Corporation or by these Bylaws, neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 11. Quorum. At any meeting of the Board of Directors, a
majority of the Directors then in office shall constitute a quorum for the
transaction of business, but if less than a quorum is present at a meeting, a
majority of the Directors present may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice, except as provided
in Section 10 of this Article II. Any business which might have been transacted
at the meeting as originally noticed may be transacted at such adjourned meeting
at which a quorum is present.
9
SECTION 12. Action at Meetings. At any meeting of the Board of
Directors at which a quorum is present, a majority of the Directors present may
take any action on behalf of the Board of Directors, unless otherwise required
by law, by the Certificate of Incorporation of the Corporation or by these
Bylaws.
SECTION 13. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 14. Manner of Participation. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all Directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these Bylaws.
SECTION 15. Committees. The Board of Directors, by vote of a majority
of the Directors then in office, may elect from its number one or more
committees, including an Executive Committee, a Compensation Committee and an
Audit Committee, and may delegate thereto some or all of its powers except those
which by law, by the Certificate of Incorporation of the Corporation or by these
Bylaws may not be delegated. Except as the Board of Directors may otherwise
determine, any such committee may make rules for the conduct of its business,
but unless otherwise provided by the Board of Directors or in such rules, its
business shall be conducted so far as possible in the same manner as is provided
by these Bylaws for the Board of Directors. All members of such committees shall
hold such offices at the pleasure of the Board of Directors. The Board of
Directors may abolish any such committee at any time. Any committee to which the
Board of Directors delegates any of its powers or duties shall keep records of
its meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, to the extent
permitted by law, but no such rescission shall have retroactive effect.
SECTION 16. Compensation of Directors. Directors shall receive such
compensation for their services as shall be determined by a majority of the
Board of Directors provided that Directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as Directors of the
Corporation.
ARTICLE III
-----------
Officers
--------
SECTION 1. Enumeration. The officers of the Corporation shall consist
of a President, a Treasurer, a Secretary and such other officers, including,
without limitation, a
10
Chairman of the Board of Directors and one or more Vice-Presidents (including
Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents,
Assistant Treasurers and Assistant Secretaries, as the Board of Directors may
determine.
SECTION 2. Election. At the regular annual meeting of the Board
following the annual meeting of stockholders, the Board of Directors shall elect
the President, the Treasurer and the Secretary. Other officers may be elected by
the Board of Directors at such regular annual meeting of the Board of Directors
or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a
Director. Any person may occupy more than one office of the Corporation at any
time. Any officer may be required by the Board of Directors to give bond for the
faithful performance of his duties in such amount and with such sureties as the
Board of Directors may determine.
SECTION 4. Tenure. Except as otherwise provided by the Certificate of
Incorporation of the Corporation or by these Bylaws, each of the officers of the
Corporation shall hold office until the regular annual meeting of the Board of
Directors following the next annual meeting of stockholders and until his
successor is elected and qualified or until his earlier resignation or removal.
SECTION 5. Resignation. Any officer may resign by delivering his or her
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
SECTION 6. Removal. Except as otherwise provided by law, the Board of
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the Directors then in office; provided, however, that if an
officer is to be removed for cause, he or she may only be removed after
reasonable notice and an opportunity to be heard by the Board of Directors.
SECTION 7. Absence or Disability. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 9. President. Unless otherwise provided by the Board of
Directors or the Certificate of Incorporation, the President shall be the Chief
Executive Officer of the Corporation and shall, subject to the direction of the
Board of Directors, have general supervision and control of the Corporation's
business. If there is no Chairman of the Board or if he is absent, the President
shall preside, when present, at all meetings of stockholders and of the Board of
Directors. The President shall have such other powers and perform such other
duties as the Board of Directors may from time to time designate.
11
SECTION 10. Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
SECTION 11. Vice Presidents and Assistant Vice Presidents. Any Vice
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 12. Treasurer and Assistant Treasurers. The Treasurer shall,
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 13. Secretary and Assistant Secretaries. The Secretary shall
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his absence from any such meeting, a temporary secretary chosen at the meeting
shall record the proceedings thereof. The Secretary shall have charge of the
stock ledger (which may, however, be kept by any transfer or other agent of the
Corporation). The Secretary shall have custody of the seal of the Corporation,
and the Secretary, or an Assistant Secretary, shall have authority to affix it
to any instrument requiring it, and, when so affixed, the seal may be attested
by his or her signature or that of an Assistant Secretary. The Secretary shall
have such other duties and powers as may be designated from time to time by the
Board of Directors or the Chief Executive Officer. In the absence of the
Secretary, any Assistant Secretary may perform his or her duties and
responsibilities.
Any Assistant Secretary shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. Other Powers and Duties. Subject to these Bylaws and to
such limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
12
ARTICLE IV
----------
Capital Stock
-------------
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to
a certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, Vice Chairman of the Board of
Directors, the President or a Vice President and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary. The Corporation
seal and the signatures by Corporation officers, the transfer agent or the
registrar may be facsimiles. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed on such certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the time of its
issue. Every certificate for shares of stock which are subject to any
restriction on transfer and every certificate issued when the Corporation is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and
unless otherwise provided by the Board of Directors, shares of stock may be
transferred only on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate theretofore properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, with transfer stamps (if necessary) affixed, and with such proof of
the authenticity of signature as the Corporation or its transfer agent may
reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required by law,
by the Certificate of Incorporation of the Corporation or by these Bylaws, the
Corporation shall be entitled to treat the record holder of stock as shown on
its books as the owner of such stock for all purposes, including the payment of
dividends and the right to vote with respect thereto, regardless of any
transfer, pledge or other disposition of such stock, until the shares have been
transferred on the books of the Corporation in accordance with the requirements
of these Bylaws.
It shall be the duty of each stockholder to notify the Corporation of
his or her post office address and any changes thereto.
SECTION 4. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date: (1) in the case of
determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless
13
otherwise required by law, not be more than sixty nor less than ten days before
the date of such meeting and (2) in the case of any other action, shall not be
more than sixty days prior to such other action. If no record date is fixed: (1)
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is held
and (2) the record date for determining stockholders for any other purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
---------
Miscellaneous Provisions
------------------------
SECTION 1. Fiscal Year. Except as otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall end on the last day of
November of each year.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without Director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President or the Treasurer or any other officer, employee or agent
of the Corporation as the Board of Directors or Executive Committee may
authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors
otherwise provides, the Chairman of the Board, if one is elected, the President
or the Treasurer may waive notice of and act on behalf of this Corporation, or
appoint another person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
any meeting of stockholders or shareholders of any other corporation or
organization, any of whose securities are held by this Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a
resident agent upon whom legal process may be served in any action or proceeding
against the Corporation.
SECTION 6 Corporate Records. The original or attested copies of the
Certificate of Incorporation, Bylaws and records of all meetings of the
incorporators, stockholders and the Board of Directors and the stock transfer
books, which shall contain the names of all
14
stockholders, their record addresses and the amount of stock held by each, may
be kept outside the State of Delaware and shall be kept at the principal office
of the Corporation, at the office of its counsel or at an office of its transfer
agent or at such other place or places as may be designated from time to time by
the Board of Directors.
SECTION 7. Certificate of Incorporation. All references in these Bylaws
to the Certificate of Incorporation shall be deemed to refer to the Certificate
of Incorporation of the Corporation, as amended and in effect from time to time.
SECTION 8. Amendment of Bylaws.
(a) Amendment by Directors. Except as provided otherwise by law, these
Bylaws may be amended or repealed by the affirmative vote of a majority of the
Directors then in office.
(b) Amendment by Stockholders. These Bylaws may be amended or repealed
at any annual meeting of stockholders, or special meeting of stockholders called
for such purpose, by the affirmative vote of at least two-thirds of the total
votes eligible to be cast on such amendment or repeal by holders of voting
stock, voting together as a single class; provided, however, that if the Board
of Directors recommends that stockholders approve such amendment or repeal at
such meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a single
class.
15
EXHIBIT 4.2
Dated: August 16, 1996
STOCK PURCHASE WARRANT
----------------------
Warrant to Purchase Shares of the Common Stock,
of PerArdua Corporation
For value received, PerArdua Corporation, a Missouri corporation (the
"Company"), hereby grants to 900 Front Street Partners the right to purchase
(subject to the provisions of this Warrant) up to 13,396 shares of the Company's
Common Stock, par value $0.001 per share (the "Stock"), at a purchase price of
Ten Dollars ($10.00) per share (the "Exercise Price").
The number of shares of Stock to be received upon the exercise of this
Warrant and the price to be paid for a share of Stock may be adjusted
periodically as hereinafter set forth. The shares of Stock deliverable upon such
exercise of this Warrant are hereinafter sometimes referred to as the "Warrant
Stock", and the purchase price per share of Stock in effect at any time is
hereinafter sometimes referred to as the "Exercise Price". The term "Warrant",
as used herein, shall include this Warrant and any Warrants issued in
substitution for or replacement of this Warrant or into which this Warrant may
be divided or exchanged.
(a) Exercise of Warrant.
On the terms and subject to the conditions herein set forth, the holder
shall have the right to exercise this Warrant in whole or in part at any time or
from time to time following the FDA Approval Date, as defined hereafter, until
5:00 p.m. Local Time on June 30, 2006, by presentation and surrender hereof to
the Company together with the Purchase Form attached hereto duly executed, and
accompanied by payment of the Exercise Price for the number of shares specified
in such Purchase Form, together with all federal and state taxes, if any,
applicable upon such exercise. The "FDA Approval Date" means the date on which
approval by the Food and Drug Administration is given permitting the public sale
of any products developed from or in connection with the Assets, as defined in
that certain Option and Asset Purchase Agreement between the Company and
PerArdua Investors, L.P., dated of even date herewith.
If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the right of the Holder to purchase the balance of the shares
purchasable hereunder on the terms specified herein. Upon receipt by the Company
of this Warrant in proper form for exercise and payment of the Exercise Price,
the Holder shall be deemed to be the holder of record of the shares of Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Stock shall not then be actually delivered to the Holder.
(2) Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of Common Stock is greater than
the Exercise Price (at the date of calculation as set forth below), in lieu of
exercising this Warrant for cash, the holder may elect to receive shares equal
to the value (as determined below) of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Purchase Form and notice of such election in
which event the Company shall issue to the Holder a number of shares of Common
Stock computed using the following formula:
Y (A - B)
X = -----------
A
Where X = the number of shares of Common Stock to be issued to the
holder
Y = the number of shares of Common Stock purchasable
under the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the
Warrant being canceled (at the date of such
calculation)
A = the fair market value of one share of the
Company's Common Stock (at the date of such
calculation)
B = Exercise Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, fair market value (the "Fair Market
Value") of one share of Common Stock shall be determined by the Company's Board
of Directors in good faith; provided, however, that where there exists a public
market for the Company's Common Stock at the time of such exercise, the fair
market value per share shall be the average of the closing bid and asked prices
of the Common Stock quoted in the Over-The-Counter Market Summary or the last
reported sale price of the Common Stock or the closing price quoted on the
Nasdaq National Market or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall Street
Journal for the five (5) trading days prior to the date of determination of fair
market value. Notwithstanding the foregoing, in the event the Warrant is
exercised in connection with the Company's initial public offering of the Common
Stock, the fair market value per share shall be the per share offering price to
the public of the Company's initial public offering.
(b) Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and delivery upon exercise of this Warrant
such number of shares of its Stock as shall be required for issuance or delivery
upon exercise.
2
(c) Fractional Shares. No fractional shares shall be issued upon the
exercise of this Warrant. With respect to any fraction of a share called for
upon any exercise hereof, the Company shall pay to the Holder an amount in cash
equal to such fraction multiplied by the current Fair Market Value of a share of
Stock.
(d) Exchange, Loss or Mutilation of Warrant. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof at the office of the Company, for other Warrants of
different denominations entitling the Holder to purchase in the aggregate the
same number of shares of Stock purchasable hereunder. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft or destruction of this
Warrant, and of reasonably satisfactory indemnification, and if mutilated, upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant with identical terms, conditions and date.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder of the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) Restrictions on Transfer.
(1) This Warrant shall not be exercisable and/or transferrable
and the Warrant Stock shall not be transferrable except upon the conditions
specified in this Section (f), which conditions are intended, among other
things, to insure compliance with the provisions of the Securities Act of 1933
(the "Securities Act") in respect of the exercise and/or transfer of such
Warrant and/or transfer of such Warrant Stock.
(2) This Warrant shall not be exercisable and/or transferrable
and the Warrant Stock shall not be transferrable unless, prior to any exercise
or transfer, the Company shall receive from the holder of the Warrant or such
Warrant Stock, and/or the transferee thereof, as the case may be, a written
notice stating that such person is aware that Warrant and/or the Warrant Stock
have not been registered under the Securities Act and that such person is
acquiring the Warrant and/or Warrant Stock for investment only and not with the
view to the disposition or public offering thereof (otherwise than an offering
registered under the Securities Act) and that such person is aware that the
certificates representing the Warrant Stock shall bear a legend restricting
re-transfer and disposition thereof in accordance with the Securities Act
unless, in the opinion of counsel to the Company, such legend may be omitted.
This Warrant shall not be transferrable unless it has been registered under
applicable securities laws or unless there is, in the reasonable opinion of
counsel to the Company, an available exemption from such registration
requirement.
3
(g) Registration under Securities Act.
(1) For a period beginning June 30, 1997 and ending June 30, 2006
(the "Piggyback Rights Period"), if the Company proposes to file a registration
statement (the "Registration Statement") for registration of any shares of
Common Stock under the Securities Act other than a registration relating solely
to an employee benefits plan or a corporate reorganization or other transaction
under Rule 145 or a registration on any form that does not permit secondary
sales, the Company will:
(i) Give written notice of such intention to the holder of a
Warrant or Warrant Stock (a "Holder", and together with other holders
of Warrants and Warrant Stock dated of even date herewith, the
"Holders") at least thirty (30) days prior to the proposed filing date;
and
(ii) Use its best efforts to include in such registration
the number of shares of the Holder's Warrant Stock (the "Registrable
Securities") specified in a notice received by the Company within
twenty (20) days of the date of the notice specified in (i) above is
mailed or delivered to the Holder.
Notwithstanding the foregoing, if in any firmly underwritten public offering the
managing underwriter thereof determines that any of the Registrable Securities
of the Holders and any other holders of registration rights must be excluded
from the registration as a result of marketing factors, which determination
shall be given in writing, the number of shares of Registrable Securities owned
by the Holders to be included in the offering shall be allocated among the
Holders and any other holders of registration rights pro rata in accordance with
the number of shares of Common Stock requested to be included in such
registration.
(2) If and whenever the Company is required by the provisions of
this Section to use its best efforts to include any Registrable Securities in
any registration of any of its securities under the Securities Act, the Company
will, as expeditiously as possible and at its sole cost and expense:
(i) cause any registration statement filed to become and
remain effective until all of the Registrable Securities are sold, but
not for any period longer than nine months;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement whenever the Holders shall desire to dispose of
the same;
4
(iii) furnish to each Holder such number of copies of a
summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act
and such other documents as such Holder may reasonably request in order
to facilitate the disposition of the securities owned by such Holder;
and
(iv) use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each Holder shall
request and use its best efforts to do any and all other acts and
things which may be reasonably necessary to enable such Holder to
consummate the disposition in such jurisdiction of the securities owned
by such Holder.
(v) cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which
similar securities issued by the Company are then listed.
(vi) provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such registration
statement and a CUSIP number for all such Registrable Securities, in
each case not later than the effective date of such registration.
(3) The Company shall pay all expenses incurred by it in
complying with this Section (g) (including without limitation all registration
and filing fees, printing expenses and fees and disbursements of counsel for the
Company) but not the fees and disbursements of counsel for the Holders.
(4) In the event of any registration of any of its securities
under the Securities Act pursuant to this Section, the Company will indemnify
and hold harmless the Holder of such securities and each other person, if any,
who controls such Holder within the meaning of the Securities Act and each other
person who participates in the offering of such securities, against any
expenses, losses, claims, damages or liabilities, joint or several, to which
such Holder or controlling person or participating person may become subject
under the Securities Act or otherwise, in so far as such expenses, losses,
claims, damages or liabilities (or action in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained, on the effective date thereof, in any qualification or
registration statement under which such securities were registered under the
Securities Act or qualified under any applicable state securities law, any
preliminary prospectus or final prospectus contained therein or any amendment or
supplement thereto, or any document incident to any such registration or
qualification (collectively the "Offering Documents"), or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation of the Securities Act or State securities law or
any other regulation thereunder in connection with any registration,
qualification or compliance, and will reimburse such Holder and each such
controlling person or participating person for any legal or any other expenses
reasonably incurred by such Holder or such
5
controlling person or participating person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
expense, loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any Offering Document in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
Holder specifically for use in the preparation thereof. Each Holder shall, upon
the receipt of notice of the commencement of any action against such Holder or
against any such controlling person or participating person, in respect of which
indemnity may be sought from the Company on account of the indemnity agreement
contained in this Subsection (g)(4), promptly notify the Company in writing of
the commencement thereof. The omission of such Holder so to notify the Company
of any such action shall not relieve the Company from any liability which the
Company may have to such Holder or such controlling person or participating
person on account of the indemnity agreement contained in this Section to the
extent such failure is not prejudicial. In case any such action shall be brought
against any Holder or any such controlling person or participating person and
such Holder shall notify the Company of the commencement thereof, the Company
shall be entitled to participate in (and, to the extent that the Company shall
wish, to direct) the defense thereof at the Company's own expense, in which
event the defense shall be conducted by recognized counsel chosen by the Company
and reasonably satisfactory to the Holder. In the event of any registration by
the Company of any of its securities under the Securities Act pursuant to this
Section, the Holder of the securities so registered will indemnify and hold
harmless the Company and each other person, if any, who controls the Company
within the meaning of the Securities Act and each officer and director of the
Company and the other Holders to the same extent that the Company agrees to
indemnify it, but only with respect to the written information relating to such
Holder furnished to the Company by such Holder as aforesaid. Notwithstanding the
foregoing, in no event shall any indemnity by the Holder exceed the gross
proceeds from the sale of Registrable Securities received by such Holder in the
Offering.
(h) Anti-Dilution Provisions.
(1) In the event the Company shall (i) pay a dividend in shares
of Stock, or make a distribution in shares of Stock, (ii) subdivide its
outstanding shares of Stock, (iii) combine its outstanding shares of Stock into
a smaller number of shares of Stock or (iv) issue by reclassification of its
shares of Stock other securities of the Company, the number of shares of
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the Holder of this Warrant shall be entitled to receive the
kind and number of shares of Stock or other securities of the Company which such
Holder would have owned or have been entitled to receive after the happening of
any such event or any record date with respect thereto if such Holder had
exercised such Warrant immediately prior to such event or record date. An
adjustment made pursuant to this Subsection (h)(1) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(2) Whenever the number of shares purchasable upon the exercise
of this Warrant is adjusted as herein provided, the Exercise Price shall be
adjusted by multiplying such Exercise Price immediately prior to such adjustment
by a fraction, of which the numerator shall be the number of shares purchasable
upon the exercise of each Warrant immediately prior to such adjustment, and of
which the denominator shall be the number of shares so purchasable immediately
thereafter.
(3) No adjustment in the number of shares purchasable hereunder
shall be required unless such adjustment would require an increase or decrease
of at least one (1%) percent in the number of shares purchasable upon the
exercise of this Warrant; provided, however, that any adjustments which by
reason of this Subsection (h)(3) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
(4) For the purpose of this section, the term "Stock" shall mean
(i) any class of stock designated as the Common Stock of the Company at the date
of this Warrant, or (ii) any other class of stock resulting from successive
changes or reclassifications of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that at any time, as a result of an adjustment made pursuant to this
section, the Holders of a Warrant or Warrants shall become entitled to purchase
any shares of the Company other than shares of Stock, thereafter the number of
such other shares so purchasable upon exercise of this Warrant and the Exercise
Price of such shares shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Warrant Stock contained in Subsection (h)(1) through (4),
inclusive, above.
(5) Merger, Sale of Assets, Etc. If at any time while this
Warrant, or any portion thereof, is outstanding and unexpired there shall be (i)
a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash, or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entity to any other person, then, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, merger, sale or transfer, all subject to further adjustment as
provided in this Section (h). The foregoing provisions of this Section (h)(7)
shall similarly apply to successive reorganizations, consolidations, mergers,
sales and
7
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
(i) Officer's Certificate. Whenever the number of shares purchasable
upon exercise of this Warrant or the Exercise Price shall be adjusted as
required by the provisions of Section (h) hereof, the Company shall forthwith
cause a certificate executed by its Chief Financial Officer showing the number
of shares purchasable upon the exercise of this Warrant and the Exercise Price
after such adjustment, determined as herein provided, and setting forth in
reasonable detail the facts requiring such adjustment to be mailed to the Holder
of this Warrant.
(j) Notices to Warrant Holders. So long as this Warrant shall be
outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Stock or (ii) if the Company shall offer to the
holders of Stock for subscription or purchase by them any shares of Stock of any
class or any other rights or (iii) if any capital reorganization of the company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least twenty-one (21) days prior to the
date specified in (A) or (B) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (A) a
record is to be taken for purpose of such dividend, distribution or rights, or
(B) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any, as of which the holders of Stock of record shall be entitled to exchange
their shares of Stock for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(k) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Missouri.
IN WITNESS WHEREOF, this Agreement has been duly executed by the duly
authorized officer of the Company as of the date first written above.
8
PERARDUA CORPORATION
By:
-----------------------------
Name:
------------------------
Title:
-----------------------
ATTEST:
- ---------------------------
Samuel P. Sears, Jr., Secretary
9
PURCHASE FORM
DATED:______________, 19___
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _______________ shares of Common Stock and
hereby makes payment of $_______________ in payment of the actual exercise price
thereof, and requests that a certificate for such shares be issued in the name
of the undersigned and be delivered to the undersigned at the address stated
below, and, if such number of shares shall not be all of the shares purchasable
hereunder, that a new Warrant of like tenor for the balance of the remaining
shares purchasable hereunder be delivered to the undersigned at the address
stated below:
Signed:
-----------------------------
Address:
----------------------------
----------------------------
Social Security
or Federal Tax
I.D. #
-------------------------
10
EXHIBIT 4.3
EXHIBIT D
SUBSCRIPTION AGREEMENT
----------------------
In Connection with the Private Placement Memorandum
of
PERARDUA CORPORATION
August 20, 1996
THIS SUBSCRIPTION AGREEMENT (the "Agreement"), made this _____ day of
___________________, 1996 by and between PERARDUA CORPORATION, a Missouri
corporation (the "Company"), and the undersigned individual, corporation,
partnership, trust or employee benefit plan executing this Agreement as the
investor (the "Investor"), provides as follows:
W I T N E S S E T H:
WHEREAS, the Company wishes to sell to the Investor and the Investor
wishes to purchase from the Company shares of the Company's Common Stock, par
value $0.001 per share (the "Shares"), at a price of $1.60 per Share with the
number of Shares subscribed for being specified on the signature page hereof
subject to a minimum purchase of 31,250 Shares unless waived by the Company.
WHEREAS, the Investor has been furnished with the Confidential Private
Placement Memorandum dated August 20, 1996 and Addendum No. 1 thereto dated
September 18, 1996 (collectively referred to hereinafter as the "Memorandum")
which has been prepared by the Company in connection with its offering of Shares
(the "Offering"). Unless (i) otherwise defined herein or (ii) the context
otherwise requires, capitalized terms used herein shall have the same meanings
given them in the Memorandum.
NOW, THEREFORE, in consideration of the foregoing and the promises and
covenants contained in this Agreement, the Company and the Investor hereby agree
as follows:
1. Sale of Shares. In accordance with the terms and conditions of this
Agreement, the Company hereby agrees to sell to the Investor, and the Investor
hereby agrees to purchase from the Company, on or before the Closing Date, the
number of Shares indicated on the signature page hereof.
2. Purchase Price and Subscription Check. The purchase price for each
share of Common Stock shall be $1.60. The Investor shall pay such purchase price
by check made payable to "PerArdua Corporation" and delivered with this executed
Agreement and a completed Purchaser Questionnaire. The Company's sale of the
Shares is contingent upon receipt and acceptance of subscriptions for all
665,000 Shares offered in the Offering. Pending receipt and acceptance of such
subscriptions, the Investor's check will be held uncashed. On the Closing Date,
the Investor's check will be cashed and the funds will be disbursed to the
Company if such subscriptions have been received and accepted, or promptly
returned to the Investor without interest if such subscriptions have not been
received and accepted.
3. Representations of Investor. The Investor represents and warrants to
the Company that:
3.1 He, she or it is acquiring the Shares for his, her or its own
account for investment and not with a view to resale or distribution.
3.2 He, she or it: (i) has been furnished, has carefully read,
and has relied solely (except as indicated in subsection (ii) below) on the
information contained in the Memorandum (including all exhibits and all
amendments thereto, if any); (ii) has been given the opportunity to ask
questions of, and receive answers from, the Company concerning the terms and
conditions of the Offering, the Shares, the Company and its business and to
obtain such additional information that was otherwise provided, and he, she or
it has not been furnished any other literature relating to the Offering, the
Shares, the Company or its business.
3.3 He, she or it recognizes (i) that purchase of the Shares
involves a high degree of risk and has taken full cognizance of and understands
such risks, including those set forth in the section entitled "Risk Factors"
included in the Memorandum, and (ii) that the Company has relied on the
representations of the Investor as set forth in this Section 3 and in the
Purchaser Questionnaire attached as Appendix A hereto and made a part hereof in
determining materiality for purposes of the disclosure obligations of the
Company under federal and state securities laws.
3.4 He, she or it represents that (i) he, she or it is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act of 1933, as amended (the "1933 Act"), (ii) he, she or it meets the
suitability standards set forth in the section entitled "Who Should Invest and
How to Invest" in the Memorandum, (ii) he, she or it can bear the risk of losing
the entire investment in the Shares; (iii) the overall commitment of the
Investor to other investments which are not readily marketable is not
disproportionate to his, her or its net worth and the investment in the Shares
will not cause such overall commitment to become excessive; (iv) he, she or it
has adequate means of providing for current needs and personal contingencies and
has no need for liquidity in the investment in the Shares; and (v) he, she or it
has sufficient knowledge and experience in financial and business matters such
that he, she or it is capable, either alone, or together with one or more
advisors (which advisors advised him, her or it in connection with the
investment in the Shares), of evaluating the risks and merits of investing in
the Shares.
3.5 All information that he, she or it has provided to the
Company concerning himself, herself or itself and his, her or its financial
position is correct and complete as of the date hereof, and if there should be
any material change in such information prior to the issuance to him, her or it
of the Shares, he, she or it will immediately notify the Company.
3.6 He, she or it fully understands and agrees that he, she or it
must bear the economic risk of his, her or its purchase of Shares for an
indefinite period of time because, among other reasons, the Shares have not been
registered under the of 1933 Act, or the securities laws of any state, and
therefore, cannot be sold, pledged, assigned or otherwise disposed of unless
they are subsequently registered under the 1933 Act and applicable state
securities laws or an exemption from such registration is available. He, she or
it further understands and agrees that the Company will not
2
honor any attempt by him, her or it to sell, pledge, transfer or otherwise
dispose of the Shares, in the absence of an effective registration statement for
the Shares under the 1933 Act and applicable state securities laws or an opinion
of counsel, satisfactory in form and substance to the Company and its counsel,
that an exemption is available therefrom.
3.7 The Investor certifies that he, she or it has answered the
questions contained in the Purchaser Questionnaire attached hereto as Appendix A
and made a part hereof to the best of his, her or its knowledge and that the
answers thereto are complete and accurate. The Investor understands and agrees
that, although such answers will be kept strictly confidential, the Company may
present such Purchaser Questionnaire to such parties as it deems advisable if
called upon to establish the availability under the federal or state securities
laws of an exemption from registration. The Investor agrees to indemnify the
Company, its agents, officers, directors and shareholders, for any and all
losses (including attorneys' fees) incurred by it as a result of its reliance on
any answers contained therein.
3.8 If the Investor is a corporation, limited liability company
or partnership, it is authorized to make the investment contemplated herein, and
the person signing this Subscription Agreement on behalf of such entity has been
duly authorized by such entity to do so.
3.9 If the Investor is a resident of or is otherwise purchasing
Shares in the State of Missouri, he, she or it agrees that the Shares may be
disposed of only through a licensed broker-dealer and acknowledges that it is a
felony to sell securities in violation of the Missouri Securities Act.
4. Registration Rights.
4.1 If the Company proposes to file a registration statement (the
"Registration Statement") for registration of any shares of Common Stock under
the 1933 Act other than a registration relating solely to an employee benefits
plan or a corporate reorganization or other transaction under Rule 145 or a
registration on any form that does not permit secondary sales, the Company will:
(i) Give written notice of such intention to the Investor
(who, together with other purchasers of Shares pursuant to the Offering, shall
be referred to as the "Holders") at least thirty (30) days prior to the proposed
filing date; and
(ii) Use its best efforts to include in such registration
the number of shares of the Investor's Common Stock which were originally
purchased hereby (the "Registrable Securities") specified in a notice received
by the Company within twenty (20) days of the date of the notice specified in
(i) above is mailed or delivered to the Investor.
Notwithstanding the foregoing, if in any firmly underwritten public offering the
managing underwriter thereof determines that any of the Registrable Securities
of the Holders and any other holders of registration rights must be excluded
from the registration as a result of marketing factors, which determination
shall be given in writing, the number of shares of Registrable Securities owned
by the Holders to be included in the offering shall be allocated among the
Holders and any other
3
holders of registration rights pro rata in accordance with
the number of shares of Common Stock requested to be included in such
registration.
4.2 If and whenever the Company is required by the provisions of
this Section to use its best efforts to include any Registrable Securities in
any registration of any of its securities under the 1933 Act, the Company will,
as expeditiously as possible and at its sole cost and expense:
(i) cause any registration statement filed to become and
remain effective until all of the Registrable Securities are sold, but not for
any period longer than nine months;
(ii) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the 1933
Act with respect to the disposition of all securities covered by such
registration statement whenever the Holders shall desire to dispose of the same;
(iii) furnish to each Holder such number of copies of a
summary prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the 1933 Act and such other documents as
such Holder may reasonably request in order to facilitate the disposition of the
securities owned by such Holder; and
(iv) use its best efforts to register or qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each Holder shall request and use its
best efforts to do any and all other acts and things which may be reasonably
necessary to enable such Holder to consummate the disposition in such
jurisdiction of the securities owned by such Holder.
(v) cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(vi) provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such registration statement and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration.
4.3 The Company shall pay all expenses incurred by it in
complying with this Section 4 (including without limitation all registration and
filing fees, printing expenses and fees and disbursements of counsel for the
Company) but not the fees and disbursements of counsel for the Holders.
4.4 In the event of any registration of any of its securities
under the 1933 Act pursuant to this Section, the Company will indemnify and hold
harmless the Holder of such securities and each other person, if any, who
controls such Holder within the meaning of the 1933 Act and each other person
who participates in the offering of such securities, against any expenses,
losses, claims, damages or liabilities, joint or several, to which such Holder
or controlling person or participating person may become subject under the 1933
Act or otherwise, in so far as such
4
expenses, losses, claims, damages or liabilities (or action in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained, on the effective date thereof, in any
qualification or registration statement under which such securities were
registered under the 1933 Act or qualified under any applicable state securities
law, any preliminary prospectus or final prospectus contained therein or any
amendment or supplement thereto, or any document incident to any such
registration or qualification (collectively the "Offering Documents"), or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation of the 1933 Act or state securities law
or any other regulation thereunder in connection with any registration,
qualification or compliance, and will reimburse such Holder and each such
controlling person or participating person for any legal or any other expenses
reasonably incurred by such Holder or such controlling person or participating
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such expense, loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any Offering Document
in reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such Holder specifically for use
in the preparation thereof. Each Holder shall, upon the receipt of notice of the
commencement of any action against such Holder or against any such controlling
person or participating person, in respect of which indemnity may be sought from
the Company on account of the indemnity agreement contained in this Section 4,
promptly notify the Company in writing of the commencement thereof. The omission
of such Holder so to notify the Company of any such action shall not relieve the
Company from any liability which the Company may have to such Holder or such
controlling person or participating person on account of the indemnity agreement
contained in this Section to the extent such failure is not prejudicial. In case
any such action shall be brought against any Holder or any such controlling
person or participating person and such Holder shall notify the Company of the
commencement thereof, the Company shall be entitled to participate in (and, to
the extent that the Company shall wish, to direct) the defense thereof at the
Company's own expense, in which event the defense shall be conducted by
recognized counsel chosen by the Company and reasonably satisfactory to the
Holder. In the event of any registration by the Company of any of its securities
under the 1933 Act pursuant to this Section, the Holder of the securities so
registered will indemnify and hold harmless the Company and each other person,
if any, who controls the Company within the meaning of the 1933 Act and each
officer and director of the Company and the other Holders to the same extent
that the Company agrees to indemnify it, but only with respect to the written
information relating to such Holder furnished to the Company by such Holder as
aforesaid. Notwithstanding the foregoing, in no event shall any indemnity by the
Holder exceed the gross proceeds from the sale of Registrable Securities
received by such Holder in the Offering.
5. Legend. The Investor agrees that his, her or its certificates or
other evidences of or for any and all of the Shares will be legended to reflect
the restrictions set forth in this Agreement.
6. Applicable Law: This Agreement shall be construed in accordance with
and governed by the laws of the Commonwealth of Virginia without reference to
the choice of law principles thereof.
5
7. Binding Effect: Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective heirs, executors, administrators, successors, legal representatives
and assigns.
8. Notice. All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given when mailed by registered or certified
mail or the next business day if sent by special courier such as Federal Express
(except that notice of change of address shall be deemed given only when
received), to the address shown on the Company's records, in the case of the
Investor, and of the Company's Registered Agent, in the case of the Company, or
to such other names or addresses as the Company or the Investor, as the case may
be, shall designate by notice to the other party in the manner specified in this
Section.
9. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement that can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable the invalid or unenforceable provision in
any other jurisdiction or under any other circumstance.
10. Entire Agreement. This Agreement and the certificate(s)
representing Unit(s) purchased hereunder constitute the entire agreement by and
between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous understandings of the parties.
6
IN WITNESS WHEREOF, this Agreement has been duly executed by the duly
authorized officer of the Company and the undersigned Investor or its duly
authorized officer, as the case may be, as of the date first written above.
PERARDUA CORPORATION
Signature:
-------------------------
Title:
-----------------------------
Date:
------------------------------
[Individual Subscriber]
Signature:
-------------------------
-----------------------------------
[print individual name]
Date:
------------------------------
[Other Subscribers] -----------------------------------
[business name]
Signature:
-------------------------
-----------------------------------
[print name]
Its:
-------------------------------
[describe office or position held]
Date:
------------------------------
Number of Shares X $1.60 = $
--------- ----------
7
EXHIBIT 4.5
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH
SECURITIES FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS
NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH.
VOID AFTER 3:30 P.M., EASTERN TIME, ON 2002
REPRESENTATIVE'S
WARRANT TO PURCHASE
COMMON STOCK AND REDEEMABLE WARRANTS
PERARDUA CORPORATION
This is to Certify That, FOR VALUE RECEIVED, Schneider Securities, Inc. (the
"Holder") is entitled to purchase, subject to the provisions of this Warrant,
from PerArdua Corporation . ("Company"), a Delaware corporation, at any time on
or after 1998, and not later than 3:30 p.m., Eastern Time, on , 2002 ,100,000
shares of Common Stock and 100,000 Redeemable Warrants of the Company
("Securities") exercisable at a purchase price for the Securities which is 160%
of the public offering price ,in the case of the 100,000 shares of Common Stock
at $ per share and in the case of the 100,000 Redeemable Warrants at $ per
Redeemable Warrant .The number of Securities to be received upon the exercise of
this Warrant and the price to be paid for the Securities may be adjusted from
time to time as hereinafter set forth. The purchase price of a Security in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price." This Warrant is or may be one of a series
of Warrants identical in form issued by the Company to purchase an aggregate of
100,000 Shares of Common Stock and 100,000 Redeemable Warrants .. The
Securities, as adjusted from time to time, underlying the Warrants are
hereinafter sometimes referred to as "Warrant Securities". The Securities
issuable upon the exercise hereof are in all respects identical to the
securities being purchased by the Underwriter for resale to the public pursuant
to the terms and conditions of the Underwriting Agreement entered into on this
date between the Company and Holder, except that the Exercise Price per share of
Common Stock to be acquired upon the exercise of the Redeemable Warrants
issuable to Holder pursuant hereto shall be $ per share.
(a) Exercise of Warrant. Subject to the provisions of Section (g) hereof, this
Warrant may be exercised in whole or in part at anytime or from time to time on
or after , 1998, but not later than 3:30 p.m., Eastern Time on , 2002, or if ,
2002 is a day on which banking institutions are authorized by law to close, then
on the next succeeding day which shall not be such a day, by presentation and
surrender hereof to the Company or at the office of its stock transfer agent, if
any, with the Purchase Form annexed hereto duly executed and accompanied by
payment of the Exercise Price for the number of shares of Common Stock or
Redeemable Warrants, as the case may be as speficied in such Form, together with
all federal and state taxes applicable upon such exercise. The Company agrees to
provide notice to the Holder that any tender offer is being made for the
Securities no later than the day the Company becomes aware that any tender offer
is being made for the Securities. If this Warrant should be exercised in part
only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the right of the Holder to purchase
the balance of the shares purchasable hereunder along with any additional
Redeemable Warrants not exercised. Upon receipt by the Company of this Warrant
at the office of the Company or at the office of
the Company's stock transfer agent, in proper form for exercise and accompanied
by the total Exercise Price, the Holder shall be deemed to be the holder of
record of the Securities issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such Securities shall not then be actually delivered to the Holder.
(b) Reservation of Securities. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of Securities as shall be required for issuance or
delivery upon exercise of this Warrant. The Company covenants and agrees that,
upon exercise of the Warrants and payment of the Exercise Price therefor, all
Securities and other securities issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all Securities issuable upon the
exercise of the Warrants to be listed (subject to official notice of issuance)
on all securities exchanges on which the Common Stock issued to the public in
connection herewith may then be listed and/or quoted on NASDAQ.
(c) Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Holder an amount in cash equal to such fraction multiplied by the current
market value of such fractional share, determined as follows:
(1) If the Securities are listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange; or
(2) If the Securities are not so listed or admitted to unlisted trading
privileges, the current value shall be the mean of the last reported bid and
asked prices reported by the National Association of Securities Dealers
Automated Quotation System (or, if not so quoted on NASDAQ or by the National
Quotation Bureau, Inc.) on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Securities are not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current value shall
be an amount, not less than book value, determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company, such determination
to be final and binding on the Holder.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of Securities purchasable hereunder. This Warrant
may not be sold, transferred, assigned, or hypothecated until after one year
from the effective date of the registration statement except that it may be (i)
assigned in whole or in part to the officers of the "Underwriter(s)", and
(ii)transferred to any successor to the business of the "Underwriter(s)." Any
such assignment shall be made by surrender of this Warrant to the Company, or at
the office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and with funds sufficient to pay any transfer tax;
whereupon the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in-such instrument of assignment, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined with
other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date.
2
Any such new Warrant executed and delivered shall constitute an additional
contractual obligation on the part of the Company, whether or not the Warrant so
lost, stolen, destroyed, or mutilated shall be at any time enforceable by
anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Notices to Warrant Holders. So long as this Warrant shall be outstanding
and unexercised (i) if the Company shall pay any dividend exclusive of a cash
dividend, or make any distribution upon the Common Stock, or (ii) if the Company
shall offer to the holders of Common Stock for subscription or purchase by them
any shares of stock of any class or any other rights, or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Company to another corporation, or voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then,
in any such case, the Company shall cause to be delivered to the Holder, at
least ten (10) days prior to the date specified in (x) or (y) below, as the case
may be, a notice containing a brief description of the proposed action and
stating the date on which (x) a record is to be taken for the purpose of such
dividend, distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and the date, if any, is to be fixed, as of which the holders
of Common Stock of record shall be entitled to exchange their shares of Common
Stock for equivalent securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(g) Adjustment of Exercise Price and Number of Shares of Common Stock
Deliverable.
(A)(i) Except as hereinafter provided, in the event the Company shall, at
any time or from time to time after the date hereof, issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such issuance, subdivision or combination being herein call a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Exercise Price of the Common Stock issuable upon the exercise of the Warrant
and the Redeemable Warrant in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent to the
nearest cent) determined by dividing (i) the sum of (a) the total number of
shares of Common Stock outstanding immediately prior to such Change of Shares,
multiplied by the Exercise Price in effect immediately prior to such Change of
Shares, and (b) the consideration, if any, received by the Company upon such
issuance, subdivision or combination by (ii) the total number of shares of
Common Stock outstanding immediately after such Change of Shares; provided,
however, that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock.
For the purposes of any adjustment to be made in accordance with this
Section (g) the following provisions shall be applicable:
(I) Shares of Common Stock issuable by way of dividend or other distribution
on any capital stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(II) The number of shares of Common Stock at any one time outstanding shall
not be deemed to include the number of shares issuable (subject to readjustment
upon the actual issuance thereof) upon the exercise of options, rights or
warrants and upon the conversion or exchange of convertible or exchangeable
securities.
(ii) Upon each adjustment of the Exercise Price pursuant to this Section
(g), the number of shares of Common Stock and Redeemable Warrants purchasable
upon the exercise of each Warrant shall be the number derived by multiplying the
number of shares of Common Stock and Redeemable Warrants purchasable immediately
prior to
3
such adjustment by the Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the applicable adjusted Exercise Price.
(B) In case of any reclassification or change of outstanding Securities
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of a subdivision or combination), or in case of any consolidation or merger of
the Company with or into another corporation other than a merger with a
"Subsidiary" (which shall mean any corporation or corporations, as the case may
be, of which capital stock having ordinary power to elect a majority of the
Board of Directors of such corporation (regardless of whether or not at the time
capital stock of any other class or classes of such corporation shall have or
may have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned by the Company or by one or more Subsidiaries)
or by the Company and one or more Subsidiaries in which merger the Company is
the continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of subdivision or combination) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Holder of each Warrant then outstanding shall have the right
thereafter to receive on exercise of such Warrant the kind and amount of
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the principal office of the Company a statement signed by its
President or a Vice President and by its Treasurer or an Assistant Treasurer or
its Secretary or an Assistant Secretary evidencing such provision. Such
provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section
(g)(A). The above provisions of this Section (g)(B) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(C) Irrespective of any adjustments or changes in the Exercise Price or the
number of Securities purchasable upon exercise of the Warrants, the Warrant
Certificates theretofore and thereafter issued shall, unless the Company shall
exercise its option to issue new Warrant Certificates pursuant hereto, continue
to express the Exercise Price per share and the number of shares purchasable
thereunder as the Exercise Price per share and the number of shares purchasable
thereunder as expressed in the Warrant Certificates when the same were
originally issued.
(D) After each adjustment of the Exercise Price pursuant to this Section
(g), the Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth: (i) the Exercise Price as so
adjusted, (ii) the number of Securities purchasable upon exercise of each
Warrant, after such adjustment, and (iii' a brief statement of the facts
accounting for such adjustment. The Company will promptly file such certificate
in the Company's minute books and cause a brief summary thereof to be sent by
ordinary first class mail to each Holder at his last address as it shall appear
on the registry books of the Company. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an officer
or the Secretary or an Assistant Secretary of the Company that such notice has
been mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(E) No adjustment of the Exercise Price shall be made as a result of or in
connection with the issuance or sale of Securities if the amount of said
adjustment shall be less than $.10, provided, however, that in such case, any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment that shall amount, together with any adjustment so carried forward,
to at least $.10. In addition, Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any Warrant or Warrants held by
them.
4
(F) In the event that the Company shall at any time prior to the exercise of
all Warrants declare a dividend consisting solely of shares of Common Stock or
otherwise distribute to its stockholders any assets, property, rights, evidences
of indebtedness, the Holders of the unexercised Warrants shall thereafter be
entitled, in addition to the Securities or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same property, assets, rights, evidences of indebtedness, that
they would have been entitled to receive at the time of such dividend or
distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this Section (g).
(h) Piggyback Registration. If, at any time commencing one year from the
effective date of the registration statement and expiring four (4) years
thereafter, the Company proposes to register any of its securities under the
Securities Act of 1933, as amended (the "Act") (other than in connection with a
merger or pursuant to Form S-8, S-4 or other comparable registration statement)
it will give written notice by registered mail, at least thirty (30) days prior
to the filing of each such registration statement, to the Holders and to all
other Holders of the Warrants and/or the Warrant Securities of its intention to
do so. If the Holder or other Holders of the Warrants and/or Warrant Securities
notify the Company within twenty (20) days after receipt of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford each of the Underwriter and such Holders of
the Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement.
Notwithstanding the provisions of this Section, the Company shall have the
right at any time after it shall have given written notice pursuant to this
Section (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
(i) Demand Registration.
(1) At any time commencing one year from the effective date of the registration
statement and expiring four (4) years thereafter, the Holders of the Warrants
and/or Warrant Securities representing a "Majority" (as hereinafter defined) of
such securities (assuming the exercise of all of the Warrants) shall have the
right (which right is in addition to the registration rights under Section (i)
hereof), exercisable by written notice to the Company, to have the Company
prepare and file with the Securities and Exchange Commission (the "Commission"),
on one occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Underwriter and Holders, in order to comply with the
provisions of the Act, so as to permit a public offering and sale of their
respective Warrant Securities for nine (9) consecutive months by such Holders
and any other holders of the Warrants and/or Warrant Securities who notify the
Company within ten (10) days after receiving notice from the Company of such
request.
(2) The Company covenants and agrees to give written notice of any
registration request under this Section (i) by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(3) In addition to the registration rights under this Section (i) at any
time commencing one year after the effective date of the registration statement
and expiring four (4) years thereafter, the Holders of Representative's Warrants
and/or Warrant Securities shall have the right, exercisable by written request
to the Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9) consecutive months by such Holders of its Warrant Securities;
provided, however, that the provisions of Section (i)(2) hereof shall not apply
to any such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holders making such request.
5
(j) Covenants of the Company With Respect to Registration. In connection
with any registration under Section (h) or (i) hereof, the Company covenants and
agrees as follows:
(i) The Company shall use its best efforts to file a registration statement
within sixty (60) days of receipt of any demand therefor, shall use its best
efforts to have any registration statement declared effective at the earliest
possible time, and shall furnish each Holder desiring to sell Warrant Securities
such number of prospectuses as shall reasonably be requested.
(ii) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections (h), (i) and (j) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If the
Company shall fail to comply with the provisions of Section (j)(i), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), extend the Exercise Period by such number of days as shall equal the
delay caused by the Company's failure.
(iii)The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as are reasonably requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process to qualify as a foreign corporation to do business under the laws of any
such jurisdiction.
(iv) The Company shall indemnify the Holder(s) of the Warrant Securities to
be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), from
and against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Underwriter contained in Section 7 of the
Underwriting Agreement relating to the offering.
(v) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent with the
same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriter has agreed to indemnify the Company.
(vi) The Holder(s) may exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(vii)The Company shall not permit the inclusion of any securities other than
the Warrant Securities to be included in any registration statement filed
pursuant to Section (i) hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section (i) hereof, other than a secondary offering of equity
securities of the Company, without the prior written consent of the Holders of
the Warrants and Warrant Securities representing a Majority of such securities
(assuming an exercise of all the Warrants underlying the Warrants).
(viii) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (x) an opinion of counsel to the Company, dated the
6
effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (y) a "cold comfort" letter dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(ix) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(x) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD") or an Exchange. Such investigation shall include access
to books, records and properties and opportunities to discuss the business of
the Company with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(xi) The Company shall enter into an underwriting agreement with the
managing underwriters, which may be the Underwriter. Such agreement shall be
satisfactory in form and substance to the Company, and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter; provided however, that no Holder
shall be required to make any representations, warranties or covenants or grant
any indemnity to which it shall object in any such underwriting agreement. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Securities and may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(xii)For purposes of this Agreement, the term " Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
(50%) of the then outstanding Warrants and Warrant Securities that (i) are not
held by the Company, an affiliate, officer, creditor, employee or agent thereof
or any of their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith or (ii) have not been resold to the
public pursuant to a registration statement filed with the Commission under the
Act.
(k) Conditions of Company's Obligations. The Company's obligation under Section
j hereof shall be conditioned as to each such public offering, upon a timely
receipt by the Company in writing of:
(A) Information as to the terms of such public offering furnished by or on
behalf of the Holders making a public distribution of their Warrant Securities;
and
(B) Such other information as the Company may reasonably require from such
Holder, or any underwriter for any of them, for inclusion in such registration
statement or offering statement or post-effective amendment.
7
(C) An agreement by the Holder to sell his Warrants and Warrant Securities
on the basis provided in the Underwriting Agreement.
(1) Continuing Effect of Agreement. The Company's agreements with respect
to the Warrant Securities in this Warrant will continue in effect regardless of
the exercise or surrender of this Warrant.
(m) Notices. Any notices or certificates by the Company to the Holder and by
the Holder to the Company shall be deemed delivered if in writing and delivered
personally or sent by certified mail, to the Holder, addressed to him or sent
to, Schneider Securities, Inc. 1120 Lincoln Street, Denver, CO 80203, or, if the
Holder has designated, by notice in writing to the Company, any other address,
to such other address, and, if to the Company, addressed to Francis O'Donnell,
President, PerArdua Corporation, 709 The Hamptons Lane, Town and Country, MO
63017. The Company may change its address by written notice to Schneider
Securities, Inc.
(n) Limited Transferability. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned or hypothecated for a one-year period after
the effective date of the Registration Statement except to underwriters of the
Offering referred to in the Underwriting Agreement or to individuals who are
either partners or officers of such an underwriter or by will or by operation of
law. The Warrant may be divided or combined, upon request to the Company by the
Warrantholder, into a certificate or certificates evidencing the same aggregate
number of Warrants. The Warrant may not be offered, sold, transferred, pledged
or hypothecated in the absence of any effective registration statement as to
such Warrant filed under the Act, or an exemption from the requirement of such
registration, and compliance with the applicable federal and state securities
laws. The Company may require an opinion of counsel satisfactory to the Company
that such registration is not required and that such laws are complied with. The
Company may treat the registered holder of this Warrant as he or it appears on
the Company's book at any time as the Holder for all purposes. The Company shall
permit the Holder or his duly authorized attorney, upon written request during
ordinary business hours, to inspect and copy or make extracts from its books
showing the registered holders of Warrants.
(o) Transfer to Comply With the Securities Act of 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Securities, or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Sections (h) or (i) hereof; unless counsel satisfactory to the
Company is of the opinion as to any such certificate that such legend, or one
similar thereto, is unnecessary:
"The warrants represented by this certificate are restricted securities and
may not be offered for sale, sold OR otherwise transferred unless an opinion of
counsel satisfactory to the Company is obtained stating that such offer , sale
or transfer is in compliance wrath state and federal securities law.
(p) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Colorado, without giving effect to
conflict of law principles.
(q) Assignability. This Warrant may not be amended except in a writing signed by
each Holder and the Company.
(r) Survival of Indemnification Provisions. The indemnification provisions of
this Warrant shall survive until _________________ , 2005
PerArdua Corporation
8
By
-----------------------------
Francis O'Donnell , President
Date:
--------------------
Attest:
- -------------------------
, Secretary
Schneider Securities, Inc.
-----------------------------
PURCHASE FORM
Dated _____________ 19 ___
9
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing shares of Common Stock and Redeemable Warrants and hereby
makes payment of $________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name
---------------------------------------------------------------------------
(please typewrite or print in block letters)
Address
------------------------------------------------------------------------
Signature
----------------------------------------------------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED,
------------------------------------------------------------
hereby sells, assigns and transfers unto
Name
---------------------------------------------------------------------------
(please typewrite or print in block letters)
Address
------------------------------------------------------------------------
the right to purchase _____ shares of Common Stock and _____ Redeemable Warrants
as represented by this Warrant to the extent of _____ shares of Common Stock and
_____ Redeemable Warrants as to which such right is exercisable and does hereby
irrevocably constitute and appoint , _________________________ attorney, to
transfer the same on the books of the Company with full power of substitution in
the premises.
Signature
----------------------------------------------------------------------
Dated: ________________ 19 __
10
EXHIBIT 10.3
RESEARCH AGREEMENT #2
This Research Agreement ("Agreement") is entered into by and between PerArdua
Corporation, a Missouri Corporation ("Sponsor") and the UNIVERSITY OF SOUTHERN
CALIFORNIA ("University"), a California nonprofit educational institution
incorporated under the laws of the State of California.
RECITALS:
WHEREAS, the research project contemplated by this Agreement is of mutual
interest and benefit to UNIVERSITY and to SPONSOR, will further the
instructional, scholarship and research objectives of UNIVERSITY in a manner
consistent with its status as a nonprofit, tax-exempt, educational institution,
and may derive benefits for both SPONSOR and UNIVERSITY through inventions,
improvements and discoveries;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto agree to the following:
1. DEFINITIONS
1.1 "Research" shall mean the project as described in Appendix A hereof, under
the direction of Dr. Charles E. McKenna as Principal Investigator.
1.2 "University Intellectual Property" shall mean individually and collectively
all inventions, improvements and discoveries, whether or not covered by
intellectual property protection, which are conceived or made by one or more
employees of UNIVERSITY in performance of the Research.
2. RESEARCH WORK
2.1 UNIVERSITY shall use reasonable efforts to perform such Research
substantially in accordance with the terms and conditions of this Agreement.
Anything in this Agreement to the contrary notwithstanding, SPONSOR and
UNIVERSITY may at any time amend the Research by mutual written agreement.
2.2 In the event that the Principal Investigator becomes unable or unwilling to
continue the Research, and a mutually acceptable substitute is not available,
UNIVERSITY or SPONSOR shall have the option to terminate this Agreement.
2.3 Nothing in the Agreement shall be construed to limit the freedom of
researchers, whether participants in this Agreement or not, from engaging in
similar research inquiries made independently under other grants, contracts or
agreements with parties other than SPONSOR.
3. PERIOD OF PERFORMANCE
3.1 The period of performance of this Agreement is October 1, 1996 through
September 30, 1997. This Agreement shall become effective upon the date of last
signature hereto and shall continue in effect for the full duration of the
period of performance.
3.2 No-cost extension. Principal investigator may, at his option, expend
residual funds as of September 30, 1997 during a 8-month period at no additional
cost to SPONSOR, in the interests of the proposed research. Funds unexpended on
expiration of the extension period will be returned to SPONSOR.
3.3 Renewal. Principal Investigator may, at the invitation of SPONSOR, submit a
request for renewal of funding on October 1, 1997 for a specified period of not
less than one year.
Research Agreement #2 (96): PerArdua Corp. -- USC. Page 2 of 7
4. REPORTS
On March 1, 1997 and every 6 months thereafter, UNIVERSITY shall furnish SPONSOR
a letter report summarizing the work conducted. A final report setting forth the
accomplishments and significant research findings shall be prepared by
UNIVERSITY and submitted to SPONSOR within sixty (60) days of the expiration of
the Agreement. At option of Sponsor and by mutual agreement with P.I., interim
reports may be presented to Sponsor in oral form.
5. COSTS, BILLINGS AND OTHER SUPPORT
5.1 It is agreed and understood by the parties hereto that, subject to Article
2, total costs to the SPONSOR hereunder shall not exceed the amount of $177,000,
or the "Total Costs" specified in the Budget presented in Appendix A, whichever
is less. The entire payment shall be made by SPONSOR in advance of the period of
performance.
5.2 Checks shall be made payable to University of Southern California and sent
to:
Attn: Mann Bennett
University of Southern California
Department of Contracts and Grants
University Park
Los Angeles, CA 90089-1147
5.3 In the event of termination of this Agreement pursuant to Article 12 hereof,
SPONSOR shall pay all costs accrued by UNIVERSITY as of date of termination,
including noncancellable obligations. Such obligations shall include all
graduate stipends, postdoctoral appointments, and P.l. summer support called for
in Appendix A. After termination, any obligation of the SPONSOR for graduate
fellowships and appointments shall end one year from the date of appointment or
September 30, 1997, whichever is later, but not later than June 1, 1998.
5.4 P.I. budget authority. P.I. shall have the right to transfer funds from one
budget category to another without prior permission of SPONSOR, in an amount up
to 25% of the larger of the two categories affected. Transfer of funds exceeding
this amount will require written agreement of SPONSOR. P.I. may disburse
budgeted funds within categories in a flexible manner using the detailed
budgetary plan given in the Appendix as a reasonable guideline.
5.5 Any interest accrued on unexpended funds provided by SPONSOR to UNIVERSITY
will be added quarterly to the account containing these funds, to be budgeted by
P.I. for the purposes of this project.
6. PUBLICITY
Neither party shall use the name, trade name, trademark or other designation of
the other party in connection with any products, promotion or advertising
without the prior written permission of the other party.
7. PUBLICATIONS
UNIVERSITY shall have the right, at its discretion, to release information or to
publish any material resulting from the Research. UNIVERSITY shall furnish
SPONSOR with a copy of any proposed publication thirty (30) days prior to
submission for publication. If SPONSOR decides to request UNIVERSITY to file
patent protection for information contained in the proposed publication under
Articles 9 and 10 herein, SPONSOR may request UNIVERSITY to delay publishing
such proposed publication
-2-
Research Agreement #2 (96): PerArdua Corp. -- USC. Page 3 of 7
for a maximum of an additional forty-five (45) days in order to protect the
potential patentability of any invention described therein.
8. CONFIDENTIALITY
8.1 During the course of this agreement, SPONSOR may provide UNIVERSITY with
certain information, data, or material in writing which SPONSOR has clearly
marked as confidential or proprietary in nature. UNIVERSITY shall receive and
hold such information in confidence and agrees to use its reasonable efforts to
prevent disclosure to third parties of said information in the manner UNIVERSITY
treats its own similar information.
8.2 UNIVERSITY shall not consider information disclosed to it by SPONSOR
confidential which: (1) is now common knowledge or subsequently becomes such
through no breach of this Agreement; (2) is rightfully in UNIVERSITY's
possession prior to SPONSOR's disclosure as shown by written records; (3) is
disclosed to UNIVERSITY by an independent third party; or (4) is independently
developed by or for UNIVERSITY without benefit of confidential information
received from SPONSOR.
9. INTELLECTUAL PROPERTY
9.1 All rights and title to University Intellectual Property conceived under the
Research shall belong to UNIVERSITY and shall be subject to the terms and
conditions of this Agreement.
9.2 UNIVERSITY will promptly notify SPONSOR of any University Intellectual
Property conceived or made in the performance of work under this Agreement.
SPONSOR shall, upon reviewing such notification, determine whether to request
UNIVERSITY to file, prosecute and maintain any patent application or application
for other intellectual property protection, domestic or foreign, in UNIVERSITY's
name. SPONSOR shall bear all reasonable costs incurred in connection with such
preparation, filing, prosecution and maintenance directed to said University
Intellectual Property. UNIVERSITY shall keep SPONSOR advised as to all
developments with respect to such applications and SPONSOR shall be given an
opportunity to review and comment thereon.
9.3 If SPONSOR elects not to exercise its option in accordance with Article 10
herein or decides to discontinue the financial support of the application for
intellectual property protection, UNIVERSITY shall be free to file or continue
prosecution and maintenance on any such application, at UNIVERSITY's sole
expense If SPONSOR elects to discontinue the financial support of the
application for intellectual property protection prior to issuance of a valid
patent, SPONSOR thereby waives and gives up any right it may have under Section
10 below to license University Intellectual Property.
10. TRANSFER OF RIGHTS
UNIVERSITY granted SPONSOR's predecessor, Per Ardua L.P., an option to a license
to University Intellectual Property on commercially reasonable terms and
conditions, including reasonable royalties, with a right to sublicense, as was
mutually agreed upon in a separate writing, "Option and License Agreement". The
right, title and interest in and to this Agreement has been sold, assigned,
transferred and conveyed to SPONSOR by PerArdua L.P. under a separate writing of
Assignment, Assumption and Consent, to which UNIVERSITY was a party, wherein the
Option and License Agreement appears as Exhibit A.
11. COPYRIGHTS
All rights to copyrightable materials, including computer software, first
created during performance of the work funded under this Agreement shall vest in
UNIVERSITY, with a royalty-free license to SPONSOR for its internal
non-commercial use. UNIVERSITY grants SPONSOR an option to license any such
material(s) it wishes to develop for commercial purposes on reasonable terms and
conditions, including
-3-
Research Agreement #2 (96): PerArdua Corp. -- USC. Page 4 of 7
commercially reasonable royalties, as the parties mutually agree in a separate
writing. such option shall extend for six (6) months from the first date of
disclosure to SPONSOR by UNIVERSITY that such material exists.
12. TERMINATION
12.1 parties may terminate this agreement only by mutual written agreement.
12.2 Termination of this Agreement by either party for any reason shall not
affect the rights and obligations of the parties accrued prior to the effective
date of termination.
13. WARRANTIES
13.1 UNIVERSITY makes no warranties as to its ability to accomplish the
Research, as to the validity of the Research developed under this Agreement, or
as to the condition of any invention or product, tangible or intangible,
conceived, discovered or developed under this Agreement.
13.2 UNIVERSITY makes no warranties, express or implied, of merchantability or
fitness for a particular purpose of the Research or any invention or product
conceived, discovered or developed under this Agreement. Neither the Principal
Investigator, SPONSOR, nor any other person is authorized to gin/e any such
warranty in the name of or on behalf of UNIVERSITY.
13.3 SPONSOR agrees that it will not rely solely upon technical information
provided by UNIVERSITY or the Principal Investigator in developing any invention
or product, but will independently test, analyze and evaluate all inventions and
products prior to manufacture and distribution of such inventions and products.
14. INSURANCE AND INDEMNIFICATION
14.1 UNIVERSITY agrees to maintain adequate liability insurance, such protection
being applicable to Officers, employees and agents while acting within the scope
of their employment by UNIVERSITY.
14.2 SPONSOR agrees to hold harmless, indemnify and defend UNIVERSITY and
Principal Investigator from all liabilities, demands, damages, expenses and
losses arising out of performance of this Agreement (except to the extent of
UNIVERSITY's active negligence or willful misconduct), SPONSOR's use of the
Research, or SPONSOR's use, manufacture or sale of products or inventions made
by use of the results of the Research performed hereunder. The provisions of
this paragraph shall survive termination of this Agreement.
15. INDEPENDENT CONTRACTOR
UNIVERSITY is an independent contractor under this Agreement and not an agent,
servant, employee, associate, joint venturer or partner of SPONSOR.
16. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the laws of
the State of California. Jurisdiction and venue of any dispute arising out of
this Agreement shall lie with any court of competent jurisdiction within the
County of Los Angeles.
-4-
Research Agreement #2 (96): PerArdua Corp. -- USC. Page 5 of 7
17. ATTORNEYS' FEES
In the event litigation or arbitration is commenced to enforce any of the terms
of this Agreement, the prevailing party shall recover, as part of the award and
judgment, its reasonable attorneys' fees and costs of such litigation or
arbitration from the non-prevailing party.
18. ASSIGNMENT
Neither party shall assign this Agreement except with the prior written consent
of the other party.
19. WAIVER AND SEVERABILITY
19.1 No waiver by either party of any breach of any provision hereof shall
constitute a waiver of any other breach of that or of any other provision
hereof.
19.2 In the event a court or governmental agency of competent jurisdiction holds
any provision of this Agreement to be invalid, such holding shall have no effect
on the remaining provisions of this Agreement, and they shall continue in full
force and effect. Upon such holding, the parties shall, within a reasonable
period of time, determine whether the severed provision(s) detrimentally and
materially affect the obligations or performance of either or both parties. If
so affected, the parties shall, within a reasonable period of time, negotiate in
good faith to modify this Agreement to relieve such effects. If such
negotiations do not result in mutually agreeable modification to this Agreement,
notwithstanding the provisions of Article 12 herein either effected party may
terminate this Agreement upon providing the other party with thirty (30) days
written notice of such termination.
20. AGREEMENT MODIFICATION
This Agreement may be modified or amended, including extension of the term of
this Agreement, at any time only by a written amendment executed by both
parties.
-5-
Research Agreement #2 (96): PerArdua Corp. -- USC. Page 6 of 7
21. NOTICES
Any notices given under this Agreement shall be in writing and delivered to the
following addresses by return receipt mail, postage prepaid, or by overnight
courier service. Such notices shall be effective upon the third business day
following mailing, if by mail, or upon receipt, if by courier.
FOR UNIVERSITY:
FOR SPONSOR:
Nann Bennett
Mr. Samuel P. Sears, Jr. Department of Contracts and Grants
(Director & Treasurer, Per Ardua Corporation) Stonier Hall Rm. 330
16 South Market St. University of Southern California
Petersburg, VA 23803 Los Angeles, CA 90089-1147
COPY TO PI:
Dr. Charles E. McKenna
Department of Chemistry
Organic Chemistry Wing Rm. 201
University of Southern California
Los Angeles, CA 90089-0744
22. THIRD PARTY RIGHTS
This Agreement shall not create any rights, including without limitation
third-party beneficiary rights, in any person or entity not a party to this
Agreement.
-6-
Research Agreement: PerArdua, Inc. -- USC. Page 7 of 7
2 3. ENTIRE AGREEMENT
This Agreement constitutes the entire understanding between the parties hereto
and there are no collateral, oral or written agreements or understandings.
IN WITNESS WHEREOF, the parties have executed this Agreement in two or more
counterparts, each as an original and ail together as one instrument as of the
date of last signature below written.
PERARDUA CORPORATION UNIVERSITY OF SOUTHERN CALIFORNIA
By: /s/ Samuel P. Sears, Jr. By: /s/ Lloyd Armstrong, Jr.
------------------------ ------------------------
Name: Samuel P. Sears. Jr. Name: Lloyd Armstrong. Jr.
-------------------- --------------------
Title: Director & Treasurer Title: Provost and Senior V.P.,
-------------------- ------------------------
Academic Affairs
------------------------
Date: January 7, 1997 Date: October 24, 1996
--------------- ----------------
ATTACHMENT: Appendix A (Statement of Work)
-7-
EXHIBIT 10.4
CONSULTING AGREEMENT
Agreement ("Agreement") made as of the 30th day of September, 1996, by
and between PerArdua Corporation, a Missouri corporation ("PerArdua"), and Dr.
Charles E. McKenna, Ph.D., an individual residing in Pacific Palisades,
California ("McKenna").
PerArdua and McKenna hereby agree as follows:
1. Consulting Services. Subject to the terms and conditions of this
Agreement, PerArdua hereby engages McKenna to provide consulting services to it
for the period beginning on the date of this Agreement and expiring September
30, 1999, subject to earlier termination as hereinafter provided, and McKenna
agrees to provide such services.
2. Scope of Services. (a) It is understood that McKenna shall be
obligated to provide consulting services only upon matters which relate to his
field of professional expertise and experience, namely the field of chemistry
generally and specifically to any matters relating to the development of a drug
termed Thiovir(TM), as the parties may mutually agree. Consulting services may
include, but shall not be limited to, providing advice and consultation to
officers or employees of PerArdua or to others designated by and having a
relationship with PerArdua, evaluating scientific information, narratives and/or
data and reporting upon the same to PerArdua, attending and participating in
meetings pertinent to PerArdua's business, and otherwise cooperating with
PerArdua in a consulting capacity, all as may be requested from time to time by
PerArdua and subject to the limitations set forth in (b) next below. McKenna
shall perform his services in Me Los Angeles, California metropolitan area and
at such other locations as McKenna and PerArdua reasonably may agree; provided
that if PerArdua requests McKenna to perform services outside of the Los Angeles
metropolitan area, McKenna shall use reasonable efforts to comply with such
request.
(b) It is acknowledged by PerArdua that McKenna's principal occupation
is as a Professor of Chemistry at the University of Southern California ("USC")
and that, in addition to his commitments to USC, he will have from time to time
other professional commitments. McKenna's obligations to PerArdua hereunder are
subject to his commitments to USC, it being understood that McKenna will
nevertheless make a good faith effort to make himself available to provide
services hereunder from time to time as may be reasonably requested by PerArdua.
It is further understood that in no event will McKenna be expected to provide
more than one day a week to PerArdua. Both parties shall act in good faith in
arriving at mutually convenient times for the rendering of services hereunder.
(c) PerArdua acknowledges that McKenna's services under this Agreement
are in the nature of research and development services. McKenna shall use his
best judgment and efforts to timely and professionally perform his services
under this Agreement. PerArdua acknowledges and agrees that McKenna can not
guaranty that any of his research efforts and decisions will produce
1
results directly beneficial to the development of Thiovir(TM) and that McKenna
shall not be deemed to be in breach of this Agreement solely because it is
subsequently determined that the research is not successful or that an
alternative course of research would have been more beneficial.
3. Compensation. (a) PerArdua shall pay to McKenna a retainer of $5,000
for the period October 1, 1996, through March 31, 1997, $5,000 for the period
April 1, 1997, through September 30, 1997, $12,500 for the period October 1,
1997, through September 30, 1998, and $ 15,000 for the period October 1, 1998,
through September 30, 1999. Such retainer payments shall be due and payable on
the first day of each applicable period except the first $5,000 payment shall be
made on January 2, 1997. All amounts paid and payable by PerArdua under this
Section 3 (a) shall be deemed non-refundable regardless of circumstances which
may occur after the payment date except that PerArdua shall not be precluded by
these provisions from seeking or obtaining damages for breach of this agreement.
(b) In addition to the retainer specified in (a) above, PerArdua shall
pay to McKenna $ 1,~000 for each day (in excess of four hours) and $600 for each
half day (up to four hours) of consulting services hereunder. Travel time,
unless after 6:00 p.m. or before 8:00 a.m., shall be added to time spent on
consulting services for purposes of computing compensation hereunder. Such
compensation shall be paid to McKenna reasonably promptly after PerArdua is
invoiced therefor. Notwithstanding the foregoing, no per diem fees shall be
payable for the following consulting services rendered by McKenna hereunder: (i)
incidental telephone discussions or other de minimis expenditures of time, (ii)
advice and consultation to PerArdua and/or its attorneys, accountants and
underwriters, and attorney for underwriters, rendered on or before June 30,
1997, and regarding scientific and development matters pertinent to the drug
Thiovir in connection with the preparation of a registration statement, and any
amendments thereto, for an initial public offering of PerArdua's securities, and
discussed or to be discussed in such registration statement and amendments, and
(iii) advice and consultation rendered on or before December 31, 1996, regarding
the preparation of protocols for the testing of, and studies with respect to,
Thiovir pursuant to FDA rules, regulations and guidelines.
(c) PerArdua shall reimburse McKenna for his reasonable out-of-pocket
expenditures incurred in the performance of his services hereunder upon
presentation of appropriate supporting documentation.
(d) PerArdua shall reimburse McKenna for legal fees and disbursements
incurred by him in connection with the negotiation and preparation of this
Agreement up to a maximum of $1,000.
4. Restrictive Covenants. (a) During the Term and for a period of one
year thereafter, McKenna, whether for himself or as an employee or agent of, or
consultant to, another person or entity, shall not be engaged in any activity,
including, without limitation, research, product design, product development,
manufacturing or selling, which involves the development or commercialization of
a specific drug for the treatment of active cytomegalovirus in the human
2
body; provided, however, that the foregoing restrictions shall not apply to (i)
any acts undertaken pursuant to research grants made to USC by PerArdua, whether
now or hereinafter in effect, or (ii) any acts undertaken on behalf of PerArdua
pursuant to this Agreement or otherwise, or (iii) any "Permitted Research"
regardless of the source of the funding for such research or the topic of the
research. For purposes of this Section. "Permitted Research" means (I) any
exploratory or general research that is not oriented towards the development of
any specific drug or treatment for active cytomegalovirus in the human body or
for other virus which has been identified by PerArdua as a potential target for
control by Thiovir or any variation thereof or synthetic substitute therefor,
and (II) any research with respect to which there is no reasonable possibility
that the research may result in findings that would relate to a specific drug or
treatment of the type described in (I) above.
In the event that McKenna submits a proposal for funding or receives
funding to perform any Permitted Research of the type described in (iii) above,
but which McKenna nevertheless anticipates may produce results which may relate
to a specific drug for the treatment of cytomegalovirus, he shall give PerArdua
written notice of such proposal or funding commitment and the following
provisions designated (w) through (z) shall apply:
(w) If the proposal is submitted to a government agency, such as
NIH, McKenna shall deliver to PerArdua, within thirty (30)
days after the submission of such proposal, a copy of the
title, abstract and total budget request and an explanation
of why the proposed research is exploratory or general
research that is permitted under paragraph 4 (a) (iii) above.
If, within thirty (30) days after its receipt of such
materials and statement from McKenna, PerArdua advises
McKenna in writing that it desires to have McKenna perform
such research for PerArdua and that PerArdua will fund such
research, McKenna shall negotiate in good faith with PerArdua
regarding the withdrawal of such proposal and PerArdua's
sponsorship of the research.
(x) If McKenna intends to submit to a government agency a
proposal for a joint small business-academic or small
business research proposal under the SBIR, STTR or similar
program; McKenna shall deliver to PerArdua, within thirty
(30) days after the submission of such proposal, a copy of
the title, abstract and total budget request and an
explanation of why the proposed research is exploratory or
general research that is permitted under paragraph 4 (a)
(iii) above. If, within thirty (30) days after its receipt of
such materials and statement from McKenna, PerArdua advises
McKenna in writing that it desires to have McKenna perform
such research with PerArdua, McKenna shall agree to
collaborate with PerArdua as McKenna's small business partner
on such proposal.
3
(y) If McKenna receives from a for-profit entity a commitment for
funding or research, or a request that he perform funded
research, of a type that may be described in clause 4 (a)
(iii) above and other than as a result of a proposal
described in either of paragraphs (w) and (x) above, McKenna
shall give PerArdua written notice of the commitment or
request promptly after his receipt of the commitment or
request. Thereafter, PerArdua shall have thirty (30) days
within which to advise McKenna in writing that it desires to
have McKenna perform such research for PerArdua and that
PerArdua will fund such research.
(z) If PerArdua does not provide to McKenna within the applicable
period described above such notice and reasonable assurance
that the funding will be provided timely, McKenna thereafter
may perform such research without violating any of the
provisions of this Section 4, provided that noting in this
Section shall be deemed to relieve McKenna of his obligations
to perform services for PerArdua under Sections 1 and 2
hereof. McKenna shall not be deemed to have breached any
obligation under this Agreement solely by reason of his delay
or failure to provide any notice contemplated in any of
paragraphs (w), (x) or (y) above.
(b) McKenna shall not, during the Term and for a period of five (5)
years thereafter, disclose to any other party any trade secrets or confidential
information of PerArdua, except (i) as may be required by law or governmental
order, (ii) such information which has already been made public through no
wrongful act of McKenna, or which is approved for release by PerArdua or (iii)
such information as is the subject matter of a patent application which has been
abandoned. For purposes of this Agreement, all documents marked "CONFIDENTIAL"
or by some similar legend, shall be deemed to be confidential information or
trade secrets of PerArdua.
(c) Subject to the provisions of Section 4 (d) below, McKenna agrees
that any inventions, improvements or modifications made by him during the Term
hereof and relating in any way to (i) the chemical compound thiophosphonoformic
acid or any variation thereof or synthetic substitute therefor, or (ii) a
specific drug which may be used for the treatment of active cytomegalovirus,
shall be promptly disclosed and shall belong to PerArdua. McKenna shall execute
and deliver to PerArdua such instruments of transfer as PerArdua may reasonably
request in order to effect the intent of this provision.
(d) PerArdua acknowledges and agrees that McKenna is a Professor
employed at USC, that he is subject to various agreements with USC and policies
of USC under which he is obligated to assign to USC his rights in inventions,
improvements, modifications, trade secrets and other confidential information
that he may develop or make, either alone or in connection with others, while
employed at USC, including those arising from his performance of services under
this Agreement, that PerArdua's rights under Section 4 (c) above are subject and
subordinate to
4
McKenna's obligations to USC, and that McKenna shall not be deemed to have
violated any provision of Section 4 (c) above by reason of his transfer or
assignment to USC, pursuant to the terms of any agreement between McKenna and
USC, of any invention, improvement or modification described in this Section.
McKenna represents that attached hereto is a true and complete list of each
agreement between McKenna and USC and that he has delivered to PerArdua a true
and complete copy thereof. PerArdua acknowledges that it has had a chance to
review each such agreement.
5. Early Termination. (a) In the event PerArdua does not complete an
underwritten public offering of its securities in an amount of at least
$4,000,000 on or before June 30, 1997, then PerArdua shall have the right to
terminate this Agreement as of September 30, 1997, by giving to McKenna written
notice of such termination at any time on or before August 31, 1997.
(b) If McKenna dies or becomes disabled during the Term, this Agreement
shall terminate automatically on the date of McKenna's death or ten (10) days
after PerArdua delivers to McKenna written notice of its intention to terminate
this Agreement pursuant to this Section because of McKenna's disability. For
purposes of this Section, McKenna shall be deemed to be disabled if he is
unable, by reason of his physical or mental disability, to discharge his duties
hereunder for a period of three (3) consecutive calendar months.
(c) PerArdua may terminate this Agreement for "good cause" relating to
McKenna's actions or omissions. For purposes of this paragraph, the term "good
cause" shall include only the following: (i) McKenna's continuing and repeated
failure or refusal to perform his material duties as required by this Agreement
after PerArdua shall have given McKenna written notice specifically stating the
nature of such failure or refusal and affording McKenna at least thirty (30)
days to correct the specified act or omission; or (ii) the existence of a
material breach by McKenna of any of the material provisions of this Agreement
after PerArdua shall have given McKenna written notice specifically stating the
nature of such breach and affording McKenna at least thirty (30,~ days to
correct such breach. PerArdua may terminate this Agreement at the end of any
such 30-day period by delivering to McKenna a second notice of termination and
this Agreement shall terminate simultaneously with the delivery of such second
notice.
(d) McKenna may terminate this Agreement for "good cause" relating to
PerArdua's actions or omissions. For purposes of this paragraph, the term "good
cause" shall include but not be Limited to, the existence of a material breach
by PerArdua of any of the material provisions of this Agreement after McKenna
shall have given PerArdua written notice stating with specificity the nature of
such breach and affording PerArdua at least thirty (30) days to correct such
breach. McKenna may terminate this Agreement at the end of any such 30-day
period by delivering to PerArdua a second notice of termination and this
Agreement shall terminate simultaneously with the delivery of such second
notice.
(e) Upon termination of this Agreement, McKenna shall be entitled to be
paid any unpaid
5
compensation for the period prior to the date of termination and to be
reimbursed for expenses incurred before the date of termination. PerArdua shall
pay such compensation and expense reimbursement to McKenna within ten (10) days
after the later of the date of termination of the Agreement and the date on
which McKenna delivers to PerArdua a statement requesting payment of such
compensation and/or expense reimbursement.
(f) Except as specifically provided in this Section 5, in the event of
termination, all obligations of the parties hereto shall be null and void after
the termination date, including without limitation the retainer payments payable
after the termination date, but excluding those provisions of Section 4 above
which continue after the Term. PerArdua acknowledges and agrees that if PerArdua
terminates this Agreement because it has not completed an underwritten public
offering on or before June 30, 1997, McKenna's obligations under Section 4 (a)
hereof shall terminate simultaneously with the termination of this Agreement.
(g) "Term" as used in this Agreement shall mean the period of time
specified in Section 1 of this Agreement as the same may be earlier terminated
in accordance with the provisions of this Section 5.
6. Relationship of Parties. Both parties acknowledge that their
relationship created hereby is strictly one of independent contractors, and no
employment or agency relationship is created or intended.
7. Miscellaneous. (a) This Agreement shall be governed by the laws of
California.
(b) This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective successors, assigns, heirs
and representatives.
8. Insurance. At such time as PerArdua obtains any product liability
insurance and/or errors and omissions insurance applicable to its officers,
directors and employees, PerArdua shall use its reasonable efforts to cause such
insurance to apply to and include McKenna with respect to his performance of
services under this Agreement.
9. Arbitration. Except as provided below, any claim or controversy
arising out of or relating to this Agreement shall be settled by binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA"), and judgment on the award rendered by the
arbitrators may be entered in any court having jurisdiction. The arbitration
shall be held in Los Angeles, California. The parties shall jointly select one
arbitrator; provided that if the parties do not agree on a single arbitrator
within frozen (15) days after delivery of notice of the commencement of the
arbitration, then a single arbitrator shall be chosen in accordance with the
procedures of the AAA. The AAA shall be instructed to appoint an arbitrator
within fifteen (15) days of receiving notice from either party that the parties
could not agree on an arbitrator, and the arbitrator shall be instructed to use
its best effort to conclude the
6
arbitration within thirty (30) days of appointment. Each party shall pay
one-half of the fees of the arbitrator and the other costs of the arbitration,
administrative fees and all other fees and costs. Notwithstanding the foregoing,
neither party shall be obligated to resort to arbitration for any injunction
sought for a breach of Section 4 thereof. Each party shall use its best efforts
to proceed with and conclude as expeditiously as possible any arbitration
proceedings pursuant hereto.
10. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been delivered, when
served, if personally served, or five (5) days after mailing, if mailed by
certified or registered mail, return receipt requested, or when transmitted, if
sent by facsimile, telex or other form of electronic transmission, or when
delivered, if delivered by recognized overnight delivery service such as Federal
Express or DHL, in all cases charges prepaid and addressed to the appropriate
party at the address set forth on the signature page of this Agreement or to
such other person or address as the party may from time to time furnish for
purposes of such notice.
Executed as of the date first above written.
PerArdua: PerArdua Corporation
by: /s/ Samuel P. Sears, Jr.
------------------------------
Samuel P. Sears, Jr., Treasurer
Address: 16 South Market Street
Petersburg, VA 23803
fax: 804-861-6215
McKenna: /s/Charles E. McKenna
------------------------------
Charles E. McKenna, individually
Address: 16625 Pequeno Place
Pacific Palisades, CA 90272
Fax: (213) 740-5401
7
AGREEMENTS AND POLICIES
Set forth below is a list of the written agreements between McKenna and USC
and the written policies of USC that McKenna has delivered to PerArdua under
Section 4(d) of the Consulting Agreement.
1. The relevant portions of McKenna's Faculty Contract with USC
2. The relevant portions of the USC Faculty Handbook, including Appendices 5,
6, 7 and 8
3. The relevant portions of the USC statement for faculty on Conflict of
Interest in Research: Policy and Procedures.
4. July 13, 1995 Important Notice from National Science Foundation to
Presidents of Universities and Colleges and Heads of Other National Science
Foundation Grantee Organizations regarding technical changes to
investigator financial disclosure policy
EXHIBIT 10.5
ASSIGNMENT, ASSUMPTION AND CONSENT
This ASSIGNMENT, ASSUMPTION AND CONSENT (this "Agreement")
is made and entered into as of this Monday July, 1996, by and among PerArdua
Investors, L.P., a California limited partnership ("PLP"), University of
Southern California, a California nonprofit corporation ("USC"), and PerArdua
Corporation, a Missouri corporation ("PC").
R E C I T A L S
A. PLP and USC made and entered into that certain Option & License
Agreement effective March 28, 1994, as amended, modified and supplemented
through the date hereof (the "License Agreement"), a true and correct copy of
which is attached hereto as Exhibit "A";
B. PLP and PC desire to enter into an Option and Asset Purchase
Agreement dated July' 8 , 1996 (the "Option Agreement"), pursuant to which PC is
granted an option The "Option") to acquire, among other things, PLP's rights and
obligations under the License Agreement;
C. Subject to the terms and conditions set forth herein, (i) PLP
desires to sell, assign, transfer and convey all of its right, title and
interest in and to the License Agreement to PC, (ii) PC desires to acquire all
such rights from PLP and is willing to assume, and fully, completely and timely
perform, comply with and discharge, each and all of the obligations, duties and
liabilities of PLP as Licensee (or, if different, all obligations, duties and
liabilities of an assignee) under the License Agreement and (iii) USC is willing
to consent to such assignment by PLP and assumption by PC.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and conditions contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto do hereby agree as follows:
1. Assignment. For and in consideration of the assumption by PC
described in Section 2 hereof and the consent of USC described in Section 3
hereof, AND CONDITIONED UPON the exercise of the Option by PC in accordance with
the terms of the Option Agreement on or before September 15, 1996, PLP does
sell, assign, transfer and convey all of its right, title and interest in and to
the License Agreement to PC.
2. Assumption. For and in consideration of the assignment of PLP
described in Section 1 hereof and the consent of USC described in Section 3
hereof, and conditioned upon the exercise of the Option by PC in accordance with
the terms of the Option Agreement on or before September 15, 1996, PC does
assume, and covenant and agree fully, completely and timely to perform, comply
with and discharge each and all of the obligations, duties and liabilities of
PLP as Licensee (or, if different, all obligations, duties and liabilities of an
assignee) under the License Agreement, including without limitation the payment
of all amounts due to USC under or pursuant to the License Agreement such as
royalties attorneys' fees, and payments under the Research Agreement between USC
and PLP effective March 9, 1994, as amended. PC further agrees to be fully and
completely bound by each and every term and condition of the License Agreement
and expressly acknowledges that no term, condition, obligation, duty or
liability under the License Agreement has been waived or excused by USC.
3. Consent. For and in consideration of, and contingent upon the
assumption of PC described in Section 2 hereof and the satisfaction of the
condition provided for in Section 4 hereof, and conditioned upon the execution
of the Option by PC in accordance with the terms of the Option Agreement on or
before September 15, 1996, and with the understanding that neither the
assignment by PLP nor this consent shall constitute either (a) a consent to any
further assignment under the License Agreement, which further assignment may be
accomplished in and only in accordance with the provisions of the License
Agreement, or (b) a modification of any of the provisions of the License
Agreement, each and all of which provisions shall remain in full force and
effect without any modification whatsoever, USC does consent to the assignment
by PLP described in Section 1 hereof.
4. License Agreement Condition. PLP and PC acknowledge that,
pursuant to Section 16 of the License Agreement, the effectiveness of the
assignment, assumption and consent provided for herein is conditioned upon USC's
receipt of four percent (4%) of the aggregate consideration received by PLP as a
result of its assignment or transfer to PC, including without limitation all
cash, notes and securities issued or issuable to PLIP or any of its partners in
consideration for his or her partnership interest in PLP; provided that any such
securities shall be issued to USC but held by the Secretary of PC pursuant to
escrow instructions in form and substance reasonably acceptable to PC and USC.
5. Validity of Agreement. Notwithstanding any provision of this
Agreement to the contrary, in no event shall this Agreement be valid or binding
upon the parties hereto unless and until the Option is exercised by PC in
accordance with the terms of the Option Agreement on or before September 15, 1
996.
6. Miscellaneous.
A. Waiver of Breach. No parry's failure to enforce any provision or
provisions of this Agreement shall be deemed or in any way construed as a waiver
of any such provision or provisions, nor prevent that party thereafter from
enforcing each and every provision of this Agreement. The rights granted the
parties herein are cumulative and shall not constitute a waiver of any party's
right to assert all other legal remedies available to it under the
circumstances.
-2-
B. Governing Law; Venue. This Agreement shall be construed in
accordance with and all disputes hereunder shall be governed by the internal
laws of the State of California; provided, however, that any provision of this
Agreement which may be prohibited by or otherwise held invalid under such laws
shall be ineffective only to the extent of such prohibition or invalidity and
shall not invalidate or otherwise render ineffective any or all of the remaining
provisions of this Agreement. USC, PC, and PLP hereby consent to the
jurisdiction of the courts of the State of California and the United States
courts located in the County of Los Angeles, State of California, in connection
with any lawsuit, action or proceeding arising out of or relating to this
Agreement, and such courts shall be the only courts having jurisdiction of any
such controversies. All parties hereby waive any defense of lack of In personam
jurisdiction, improper venue and forum non conveniens, and agree that service of
process of such court may be made upon each of them by personal delivery or by
mailing certified or registered mail, return receipt requested, to the parties
at the addresses set forth below.
C. Expenses. If any legal action or other proceeding is brought
forth for the enforcement of this Agreement, or because of an alleged dispute,
or breach or default in connection with any of the provisions of this Agreement,
the successful or prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs incurred! in that action or proceeding, in
addition to any other relief to which it or they might be entitled.
D. Counterparts. This Agreement may be executed simultaneously in
two (2) or more counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one (1) and the same instrument.
E. Complete Agreement; Amendments. This Agreement contains the
entire understanding among the parties hereto with respect to the subject matter
hereof and supersedes any prior agreements and understandings relating thereto.
This Agreement may not be waived, changed, modified, extended or discharged
orally, but only by a written instrument signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought.
[Intentionally left blank]
-3-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
in triplicate as of the day and year first above written.
UNIVERSITY OF SOUTHERN CALIFORNIA
By: Illegible
---------------------------------
Its: Sr. VP for Administration
--------------------------------
Address: University Park
Los Angeles, California 90089-1333
PERARDUA INVESTORS, L.P.
By:
--------------------------------
Its:
-------------------------------
Address: 350 California Street, Suite 1905
San Francisco, California 94104
PERARDUA CORPORATION
By:
--------------------------------
Its:
-------------------------------
Address: 709 The Hamptons Lane
Town & Country, Missouri 63017
-4-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
in triplicate as of the day and year first above written.
UNIVERSITY OF SOUTHERN CALIFORNIA
By:
---------------------------------
Its:
--------------------------------
Address: University Park
Los Angeles, California 90089-1333
PERARDUA INVESTORS, L.P.
By: Illegible
--------------------------------
Its: President and CEO of General Partner
PerArdua, II
-------------------------------
Address: 350 California Street, Suite 1905
San Francisco, California 94104
PERARDUA CORPORATION
By:
--------------------------------
Its:
-------------------------------
Address: 709 The Hamptons Lane
Town & Country, Missouri 63017
-4-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
in triplicate as of the day and year first above written.
UNIVERSITY OF SOUTHERN CALIFORNIA
By:
---------------------------------
Its:
--------------------------------
Address: University Park
Los Angeles, California 90089-1333
PERARDUA INVESTORS, L.P.
By:
--------------------------------
Its:
-------------------------------
Address: 350 California Street, Suite 1905
San Francisco, California 94104
PERARDUA CORPORATION
By: /s/ Samuel P. Sears, Jr.
--------------------------------
Its: Treasurer
-------------------------------
Address: 709 The Hamptons Lane
Town & Country, Missouri 63017
-4-
EXHIBIT 10.6
PERARDUA CORPORATION
CONSULTING AGREEMENT
--------------------
,1997
Dear Mr. O'Donnell:
This will confirm the arrangements, terms and conditions, whereby
Schneider Securities, Inc.. (hereinafter referred to as "Consultant") has been
retained by you to serve as financial consultant and advisor to PerArdua
Corporation (hereinafter referred to as the "Company"), on a nonexclusive basis
for a period of 36 months commencing on the closing date of the public offering
(the "Closing"). The undersigned hereby agree to the following terms and
conditions:
1. Consulting Services. Consultant will render financial consulting and
advice pertaining to the Company's business affairs as you may from time to time
request.
2. Financing. Consultant will assist and represent you in obtaining both
short and long-term financing whether from banks or the sale of the Company's
debt or equity.
3. Wall Street Liaison. Consultant will when appropriate arrange meetings
with individuals and financial institutions in the investment community such as
security analysts, portfolio managers, and market makers and representatives of
the Company.
4. Compensation. The Company agrees to pay the Consultant in the aggregate,
the sum of One hundred-eight thousand ($108,000) Dollars at the rate of Three
Thousand ($3,000) Dollars per month with the full amount payable at the closing
of the Offering.
5. Relationship. Nothing herein shall constitute Consultant as employee or
agent of the Company except to such extent as might hereafter be agreed upon for
a particular purpose. Except as expressly agreed, Consultants shall not have the
authority to obligate or commit the Company in any manner whatsoever.
6. Assignment and Termination. This Agreement shall not be assignable by any
party except to successors to all or substantially all of the business of either
the Consultant or the Company nor may this Agreement be terminated by either
party for any reason whatsoever without the prior written consent of the other
party, which consent may not be arbitrarily withheld by the party whose consent
is required.
Very truly yours,
Schneider Securities, Inc.
By:
Title:
Agreed and Accepted By:
PerArdua Corporation
By:
Francis O'Donnell., President
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
AGREEMENT, dated and effective as of September 3, 1996 by and between
PerArdua Corporation, a Missouri corporation, (the "Company") and Mary Anthony
Gray, an individual with an ADDRESS AT 10538 STRATHMORE Drive, Los Angeles,
California 90024 ("Executive").
WITNESSETH:
WHEREAS, the Executive is willing to serve as Executive Vice President
and Chief Operating Officer of the Company, and the Company desires to retain
the Executive in such capacities THE TERMS AND conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration., the receipt and
sufficient y of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Employment; Position and Duties; Extent: of Services.
(a) Employment. The Company agrees to employ the Executive,
and the Executive agrees to be employed by the Company, for the Term provided in
Section 2 below and upon the other terms and conditions hereinafter provided.
(b) Position and Duties. During the Term as defined in
Section 2 herein, the ] executive agrees to serve as the Executive Vice
President and Chief Operating Officer of the Company and to perform such
reasonable duties consistent with such position as may be delineated by the
Chief Executive Officer and as may be assigned to her from time to time by the
Board of Directors and/or Chief Executive Officer of the Company.
(c) Extent of- Services. During the Term, and except for
illness or incapacity, THE EXECUTIVE SHALL DEVOTE NOT less than seventy-five
percent (75%) of her business time, attention, skill AND eFFORTS EXCLUSIVELY to
the business and affairs of the Company, shall not be engaged in any business
activity in violation of Section 6 of this Agreement or which would conflict
with her obligations hereunder, and shall perform and discharge well and
faithfully the duties which may be ASSIGNED TO HER FROM TIME to time by the
Chief Executive Officer and/or Board of Directors; PROVIDED, HOWEVER, THAT
NOTHING IN THIS Agreement shall preclude the Executive from devoting r
reasonable time during reasonable periods required for any or all of the
following:
1
(i) serving as a director or member of a committee of any
other company or organization involving no actual or potential conflict of'
interest with the Company or any of its subsidiaries or affiliates;
(ii) engaging in charitable and community activities;
(iii) investing her personal assets in businesses in such
form or manner as will not require any SERVICES on the part of the Executive in
the operation or affairs of such businesses; and/or
(iv) serving as biotechnology transfer advisor to the
University of Southern California in a manner similar to the period prior to her
employment with the Company.
At the request of the Company, the Executive shall advise the Company
of the nature and identity of other business organizations or endeavors in which
she may be involved.
2. Term of Employment.
The Company hereby agrees to employ the Executive, and the Executive
hereby agrees to accept such employment in the capacity set forth herein, for a
period of time commencing on the Monday following the date on which the Company
shall have completed a $1,000,000 private placement of its Common Stock to
investors (the "Commencement Date"), but if the Commencement Date shall not have
occurred on or prior to October 31, 1996, then this Agreement shall be null and
void and of no further force and effect.. The term shall continue after the
Commencement Date until the first to occur of the following: (i) the first
anniversary of the Commencement Date, or (ii) the closing date of an
underwritten initial public offering of the Company's securities which Offering
has been registered with the Securities and Exchange Commission pursuant to Me
registration provisions of the Securities Act of 1933, as amended; provided,
however, that either party may terminate this agreement at any time by written
notice to the other given at least ninety (90) days prior to the termination
date specified in such written notice. The Company agrees that, at least thirty
days prior to the anticipated expiration of the term specified hereinabove, it
will, if the Executive so desires, negotiate in good faith with the Executive
regarding continued employment beyond said expiration date pursuant to a
compensation arrangement which would include a performance bonus in the event
the Executive refers to the Company, and the company acquires or obtains rights
to or an exclusive license to, products or rights to products which are
complementary to products or rights then possessed by the Company.
2
3. Compensation.
As compensation the Executive for all services to be rendered by her in
any capacity hereunder, the Company shall pay a monthly salary at a rate of Five
Thousand and no/100 Dollars ($5,000.00) payable twice monthly. Executive shall
be entitled to four (4) weeks paid vacation per year. In additions promptly upon
commencement of Executive's employment hereunder the Company shall grant to her
incentive stock options to purchase lO,OOO shares at a price of $7.50 per share
and fully vesting one year after said commencement date.
4. Location.
Executive shall maintain an office at, and shall work out of, her
residence in Los Angeles, California or such other residence that she maintains
from time to time in the United States. The Company shall pay to Executive the
sum of One Thousand Dollars ($1,000) each month to defray the costs of such an
office and, in addition to such monthly payment, shall provide and pay labor the
following: a separate telephone line dedicated to the affairs of the Company; a
separate telephone facsimile line defeated to the affairs of the Company;
appropriate telephone and facsimile e equipment; a personal computer and modem
as may be acceptable to the Company in its discretion reasonably exercised; any
computer software acceptable to the Company in its discretion reasonably
exercised; and such other office supplies and equipment as may be approved in
advance by the Company. The Company is riot obligated to provide any office
furniture.
5. Trade Secrets and Confidential Information.
(a) Definition. As used in this Agreement (i) "Confidential Information
and Trade Secrets" means all information, processes, process parameters,
methods, practices, chemical and other formulae, fabrication techniques,
technical plans, algorithms, computer programs and related documentation,
customer lists, price lists, supplier lists, marketing plans, financial
information, and all other compilations of information which relate to the
business of the Company and which have not been released by the Company to the
general public, but shall not include general technical and business skills and
expertise which Executive has acquired or developed by reason of prior
experience, and (ii) a "Business Competitive with the Company" means an
enterprise which is engaged in the development or promotion of a product or
service which may be reasonablely considered to compete, or have the potential
to compete, in the marketplace with a product or service which the Company has
been developing or promoting, or has had plans to develop or promote, at anytime
during the Executive's employment hereunder.
(b) Respective Covenants.
(i) EXECUTIVE acknowledges that during the term of employment with the
3
Company, Executive will Awe to and become acquainted with the Confidential
Information and Trade Secrets of the Company. Executive agrees not to use or
disclose (directly or indirectly) any Confidential Information and Trade Secrets
of the Company at any time or in any manner, e except as required in the course
of employment with the Company. The obligations of this paragraph are continuing
and survive the termination of Executive's employment with the Company. All
documents and equipment relating to the business of the Company, whether
prepared by Executive or otherwise coming into Executive's possession, are the
exclusive property of the Company, and must not be removed from the premises of
the Company except as required in the course of employment with the Company. All
such documents arid equipment must be returned to the Company when Executive
leaves the employment of the Company.
(ii) While employed by the Company, Executive agrees not to undertake
any planning for any outside business which would constitute a Business
Competitive with the Company.
(iii) While employed by the Company and for five (5) years after that
employment ends, Executive agrees not to enter into any employment with a
Business Competitive with the Company in which the complete fulfillment of the
duties of the competitive employment would inherently require Executive to
reveal or use any of the Confidential Information and Trade Secrets of the
Company learned or obtained by Executive while employed by the Company.
(iv) While employed by the Company and for five (5) years after that
employment ends, Executive agrees not to divert or attempt to divert (by
solicitation or by any other means) the customers of the Company existing at the
time Executive's employment ends.
(c) No Conflict.
The Company acknowledges and agrees that the Executive's
activities as biotechnology transfer advisor to the University of Southern
California shall not be in conflict with any of the provisions of this
agreement.
6. Miscellaneous.
(a) Successors and Assigns. This Agreement is intended to benefit
and is binding on (i) the successors and assigns of the Company and (ii) the
heirs and legal successors of executive.
(b) governing law. this agreement shall be construed in accordance
with and governed by the laws of the state of california.
4
(c) Separate Enforcement of Provisions. If for any reason a part
of this Agreement is unenforceable, The remainder of the Agreement shall be
enforced to the extent possible.
(d) Modification of Agreement. This Agreement may only be modified
by a writing signed (i) by Executive and (ii) by an authorized representative of
the Company.
(e) No Conflicting Contracts. Executive represents that Executive
has no contracts with any other party that would interfere with Executive's
compliance with the terms and conditions of this Agreement
(f) No Right to Continuing Employment. No provision of this
Agreement shall be construed as giving Executive the right to be retained in the
employment of the Company, except to the extent express" set forth in this
Agreement.
Executed as of the date first above written.
/S/ Mary Anthony Gray
- --------------------------------------------- PerArdua Corporation
Mary Anthony Gray
By: /S/ Samuel P. Sears, Jr.
-------------------------
Treasurer
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement of our report,
dated January 24, 1997, relating to the financial statements of PerArdua
Corporation, and to the reference to our Firm under the caption "Experts" in the
Prospectus.
MCGLADREY & PULLEN, LLP
Richmond, Virginia
February 5, 1997
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<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> JUL-05-1996
<PERIOD-END> NOV-30-1996
<CASH> 495421
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 525139
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 532005
<CURRENT-LIABILITIES> 21518
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0
0
<COMMON> 25934
<OTHER-SE> 2609739
<TOTAL-LIABILITY-AND-EQUITY> 532005
<SALES> 1858
<TOTAL-REVENUES> 1858
<CGS> 0
<TOTAL-COSTS> 2092548
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2090690)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2090690)
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<CHANGES> 0
<NET-INCOME> (2090690)
<EPS-PRIMARY> (.81)
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